Internal Revenue Bulletin 1996-19 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

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Bulletin No. 1996–19
May 6, 1996
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 96–24, page 5.
Federal rates; adjusted federal rates; adjusted federal
long-term rate, and the long-term exempt rate. For
purposes of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the rates for May
1996.
Rev. Rul. 96–25, page 4.
Fringe benefits aircraft valuation formula. For purposes of
section 1.61–21(g) of the regulations, relating to the
rule for valuing non-commercial flights on employer-
provided aircraft, the Standard Industry Fare Level
(SIFL), cents-per-mile rates, and terminal charges in
effect for 1996 are set forth. Rev. Rul. 95–66
modified.
INTL–062–90; INTL–0032–93; INTL–52–86;
INTL–52–94, page 26.
General revision of regulations under Chapter 3 of the
Code relating to withholding of tax on U.S. source
income paid to foreign persons and related collection,
refunds, and credits; revision of information reporting
regulations under subpart B of Chapter 61 and backup
withholding regulations under section 3406; and
removal of regulations under part 35a and certain
regulations under income tax treaties.
EXEMPT ORGANIZATIONS
Announcement 96–39, page 84.
Families for Children, Golden Valley, MN, no longer
qualifies as an organization to which contributions are
deductible under section 170 of the Code.
EXCISE TAX
Notice 96–28, page 7.
A determination has been made to add butyl benzyl
phthalate to the list of taxable substances in section
4672(a)(3) of the Code.
ADMINISTRATIVE
Notice 96–29, page 7.
Credit for producing fuel from a nonconventional source,
section 29 inflation adjustment factor, and section 29
reference price. This notice publishes the section 29
inflation adjustment factor, nonconventional source fuel
credit, and the section 29 reference price for calendar
year 1995. These data are used to determine the credit
allowable on fuel produced from a nonconventional
source under section 29 of the Code.
Rev. Proc. 96–30, page 8.
Section 355 checklist questionnaire. This procedure sets
forth in a checklist questionnaire the information that
must be included in a request for rulings under section
355.
Announcement 96–38, page 84.
The instructions for Schedule SSA (Form 5500),
Annual Registration Statement Identifying Separated
Participants With Deferred Vested Benefits, are
corrected.
Announcement 96–40, page 85.
T.D. 8653, 1996–12 I.R.B. 4, relating to the character
and timing of gain or loss from certain hedging
transactions entered into by members of a consolidated
group, is corrected.
Finding Lists begin on page 87.

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Mission of the Service
The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least
cost; serve the public by continually improving the
quality of our products and services; and perform in a
manner warranting the highest degree of public
confidence in our integrity, efficiency and fairness.
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy
for raising revenue is determined by Congress.
With this in mind, it is the duty of the Service to
carry out that policy by correctly applying the laws
enacted by Congress; to determine the reasonable
meaning of various Code provisions in light of the
Congressional purpose in enacting them; and to
perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of
view.
At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the
Service, charged with the duty of interpreting the
law, to try to find the true meaning of the statutory
provision and not to adopt a strained construction in
the belief that he or she is ‘‘protecting the revenue.’’
The revenue is properly protected only when we as-
certain and apply the true meaning of the statute.
The Service also has the responsibility of applying
and administering the law in a reasonable,
practical manner. Issues should only be raised by
examining officers when they have merit, never
arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate
to raise a meritorious issue. It is also important
that care be exercised not to raise an issue or to
ask a court to adopt a position inconsistent with
an established Service position.
Administration should be both reasonable and
vigorous. It should be conducted with as little
delay as possible and with great courtesy and
considerateness. It should never try to overreach,
and should be reasonable within the bounds of law
and sound administration. It should, however, be
vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax
devices and fraud.

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Introduction
The Internal Revenue Bulletin is the authoritative
instrument of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the
Internal Revenue Service and for publishing Treasury
Decisions, Executive Orders, Tax Conventions, legisla-
tion, court decisions, and other items of general
interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscrip-
tion basis. Bulletin contents of a permanent nature are
consolidated semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin
all substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published
rulings apply retroactively unless otherwise indicated.
Procedures relating solely to matters of internal
management are not published; however, statements of
internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the
Service on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on
positions taken in rulings to taxpayers or technical
advice to Service field offices, identifying details and
information of a confidential nature are deleted to
prevent unwarranted invasions of privacy and to comply
with statutory requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be
considered, and Service personnel and others con-
cerned are cautioned against reaching the same
conclusions in other cases unless the facts and
circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on
provisions of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, and Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Admin-
istrative Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary
(Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly
and semiannual basis, and are published in the first
Bulletin of the succeeding quarterly and semi-annual
period, respectively.
The Bulletin Index-Digest System, a research and
reference service supplementing the Bulletin, may be
obtained from the Superintendent of Documents on a
subscription basis. It consists of four Services: Service
No. 1, Income Tax; Service No. 2, Estate and Gift
Taxes; Service No. 3, Employment Taxes; Service No.
4, Excise Taxes. Each Service consists of a basic
volume and a cumulative supplement that provides (1)
finding lists of items published in the Bulletin, (2)
digests of revenue rulings, revenue procedures, and
other published items, and (3) indexes of Public Laws,
Treasury Decisions, and Tax Conventions.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 61.—Gross Income Defined
26 CFR 1.61–21: Taxation of fringe
benefits.
Fringe benefits aircraft valuation
formula. For purposes of section 1.61–
21(g) of the regulations, relating to the
rule for valuing non-commercial flights
on employer-provided aircraft, the
Standard Industry Fare Level (SIFL),
cents-per-mile rates and terminal
charges in effect for 1996 are set forth.
Rev. Rul. 95–66 modified.
Rev. Rul. 96–25
For purposes of the taxation of fringe
benefits under section 61 of the Internal
Revenue Code, section 1.61–21(g) of
the Income Tax Regulations provides a
rule for valuing noncommercial flights
on employer-provided aircraft. Section
1.61–21(g)(5) of the Income Tax Reg-
ulations provides an aircraft valuation
formula to determine the value of such
flights. The value of a flight is deter-
mined under the base aircraft valuation
formula (also known as the Standard
Industry Fare Level formula or SIFL) by
multiplying the SIFL cents-per-mile
rates applicable for the period during
which the flight was taken by the
appropriate aircraft multiple provided in
section 1.61–21(g)(7) and then adding
the applicable terminal charge. The
SIFL cents-per-mile rates in the formula
and the terminal charge are calculated
by the Department of Transportation and
are revised semi-annually.
The following chart sets forth the
terminal charges and SIFL mileage
rates:
Period During Which the
Flight Was TakenTerminal ChargeSIFL Mileage Rates
1/1/96-6/30/96$32.20Up to 500 miles = $.1761 per mile
501–1500 miles = $.1343
Over 1500 miles = $.1291
EFFECT ON OTHER REVENUE
RULING
Rev. Rul. 95–66, 1995–40 I.R.B. 4,
is modified.
DRAFTING INFORMATION
The principal author of this Revenue
ruling is Thomas R. Foley of the Office
of the Associate Chief Counsel
(Employee Benefits and Exempt Orga-
nizations). For further information re-
garding this revenue ruling contact Mr.
Foley on (202) 622-6050 (not a toll-
free call).
Section 42.—Low-Income Housing
Credit
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 280G.—Golden Parachute
Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 1996.
See Rev. Rul. 96–24, page 5.
Section 355.—Distribution of stock
and securities of a controlled
corporation
25 CFR 1.355–1: Distribution of stock and
securities of a controlled corporation.
The revenue procedure sets forth in a checklist
questionnaire the information that must be
included in a request for rulings under §355. See
Rev. Proc. 96–30, page 8.
Section 382.—Limitation on Net
Operating Loss Carryforwards and
Certain Built-In Losses Following
Ownership Change
The adjusted federal long-term rate is set forth
for the month of May 1996. See Rev. Rul. 96–
24, page 5.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 467.—Certain Payments for
the Use of Property or Services
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 468.—Special Rules for
Mining and Solid Waste Reclamation
and Closing Costs
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 483.—Interest on Certain
Deferred Payments
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 846.—Discounted Unpaid
Losses Defined
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.

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Section 1274.—Determination of
Issue Price in the Case of Certain
Debt Instruments Issued for
Property
(Also Sections 42, 280G, 382, 412, 467, 468,
482, 483, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal
rates; adjusted federal long-term rate,
and the long-term exempt rate. For
purposes of sections 1274, 1288, 382,
and other sections of the Code, tables
set forth the rates for May 1996.
Rev. Rul. 96–24
This revenue ruling provides various
prescribed rates for federal income tax
purposes for May 1996 (the current
month.) Table 1 contains the short-
term, mid-term, and long-term applica-
ble federal rates (AFR) for the current
month for purposes of section 1274(d)
of the Internal Revenue Code. Table 2
contains the short-term, mid-term, and
long-term adjusted applicable federal
rates (adjusted AFR) for the current
month for purposes of section 1288(b).
Table 3 sets forth the adjusted federal
long-term rate and the long-term tax-
exempt rate described in section 382(f).
Table 4 contains the appropriate per-
centages for determining the low-
income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Fi-
nally, Table 5 contains the federal rate
for determining the present value of an
annuity, an interest for life or for a
term of years, or a remainder or a
reversionary interest for purposes of
section 7520.
REV. RUL. 96–24 TABLE 1
Applicable Federal Rates (AFR) for May 1996
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR5.76%5.68%5.64%5.61%
110 AFR6.35%6.25%6.20%6.17%
120 AFR6.94%6.82%6.76%6.73%
130 AFR7.52%7.38%7.31%7.27%
Mid-Term
AFR6.36%6.26%6.21%6.18%
110 AFR7.01%6.89%6.83%6.79%
120 AFR7.65%7.51%7.44%7.40%
130 AFR8.31%8.14%8.06%8.01%
150 AFR9.61%9.39%9.28%9.21%
175 AFR11.26%10.96%10.81%10.72%
Long-Term
AFR6.83%6.72%6.66%6.63%
110 AFR7.53%7.39%7.32%7.28%
120 AFR8.22%8.06%7.98%7.93%
130 AFR8.93%8.74%8.65%8.58%
REV. RUL. 96–24 TABLE 2
Adjusted AFR for May 1996
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.75%3.72%3.70%3.69%
Mid-term
adjusted AFR4.69%4.64%4.61%4.60%
Long-term
adjusted AFR5.68%5.60%5.56%5.54%

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REV. RUL. 96–24 TABLE 3
Rates Under Section 382 for May 1996
Adjusted federal long-term rate for the current month5.68%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.68%
REV. RUL. 96–24 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for May 1996
Appropriate percentage for the 70% present value low-income housing credit8.55%
Appropriate percentage for the 30% present value low-income housing credit3.66%
REV. RUL. 96–24 TABLE 5
Rate Under Section 7520 for May 1996
Applicable federal rate for determining the present value of an annuity, an interest for life or
a term of years, or a remainder or reversionary interest7.6%
Section 1288.—Treatment of Original
Issue Discount on Tax-Exempt
Obligations
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 7520.—Valuation Tables
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.
Section 7872.—Treatment of Loans
with Below-Market Interest Rates
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for
the month of May 1996. See Rev. Rul. 96–24,
page 5.

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Part III. Administrative, Procedural, and Miscellaneous
Tax on Certain Imported Substances;
Notice of Determination
Notice 96–28
This notice announces a determi-
nation, under Notice 89–61, 1989–1
C.B. 717, that the list of taxable
substances in §4672(a)(3) will be
modified to include butyl benzyl phtha-
late. This modification is effective
April 1, 1991.
Background
Under §4672(a), an importer or
exporter of any substance may request
that the Secretary determine whether
that substance should be listed as a
taxable substance. The Secretary shall
add the substance to the list of taxable
substances in §4672(a)(3) if the Secre-
tary determines that taxable chemicals
constitute more than 50 percent of the
weight, or more than 50 percent of the
value, of the materials used to produce
the substance. This determination is to
be made on the basis of the pre-
dominant method of production. Notice
89–61, sets forth the rules relating to
the determination process.
Determination
On March 22, 1996, the Secretary
determined that butyl benzyl phthalate
should be added to the list of taxable
substances in §4672(a)(3), effective
April 1, 1991.
The rate of tax prescribed for butyl
benzyl phthalate, under §4671(b)(3), is
$5.54 per ton. This is based upon a
conversion factor for methane of 0.05,
a conversion factor for propylene of
0.17, a conversion factor for xylene of
0.47, a conversion factor for toluene of
0.32, and a conversion factor for
chlorine of 0.26.
The petitioner is Monsanto Com-
pany, a manufacturer and exporter of
this substance. No material comments
were received on this petition. The
following information is the basis for
the determination.
HTS number:2917.39.2000
CAS number:85–68–7
Butyl benzyl phthalate is derived
from the taxable chemicals methane,
propylene, xylene, toluene, and chlo-
rine and is a liquid produced predomi-
nantly by the reaction of n-butanol and
phthalic anhydride, followed by a reac-
tion with benzyl chloride in the pres-
ence of a catalyst. n-butanol is man-
ufactured by the hydrogenation of
n-butyraldehyde, which is derived from
propylene and synthesis gas (hydrogen
and synthesis gas are derived from
natural gas). Benzyl chloride is pro-
duced by direct photochemical chlo-
rination of toluene. Phthalic anhydride
is produced by the reaction of o-xylene
with air in the presence of a catalyst.
The stoichiometric material con-
sumption formula for this substance is:
CH
4
(methane) + C
3
H
6
(propylene) +
C
8
H
10
(xylene) + 3 O
2
(oxygen) +
C
7
H
8
(toluene) + Cl
2
(chlorine)
-----. C
19
H
20
O
4
(butyl benzyl
phthalate) + 2 HCl (hydrochloric
acid) + H
2
(hydrogen) + 2 H
2
O
(water)
Butyl benzyl phthalate has been
determined to be a taxable substance
because a review of its stoichiometric
material consumption formula shows
that, based on the predominant method
of production, taxable chemicals con-
stitute 77.25 percent by weight of the
materials used in its production.
The principal author of this notice is
Ruth Hoffman, Office of Assistant
Chief Counsel (Passthroughs and Spe-
cial Industries). For further information
regarding this notice contact Ruth
Hoffman on (202) 622-3130 (not a toll-
free number).
Credit for Producing Fuel From a
Nonconventional Source, Section 29
Inflation Adjustment Factor, and
Section 29 Reference Price
Notice 96–29
This notice publishes the §29 infla-
tion adjustment factor, the nonconven-
tional source fuel credit, and the §29
reference price for calendar year 1995.
These are used to determine the credit
allowable on fuel produced from a non-
conventional source under §29 of the
Internal Revenue Code. The calendar
year 1995 inflation-adjusted credit ap-
plies to the sales of barrel-of-oil
equivalent of qualified fuels sold by a
taxpayer to an unrelated person during
the 1995 calendar year, the domestic
production of which is attributable to
the taxpayer.
BACKGROUND
Section 29(a) provides for a credit
for producing fuel from a nonconven-
tional source, measured in barrel-of-oil
equivalent of qualified fuels, the pro-
duction of which is attributable to the
taxpayer and sold by the taxpayer to an
unrelated person during the tax year.
The credit is equal to the product of
$3.00 and the appropriate inflation
adjustment factor.
Section 29(b)(1) and (2) provides for
a phaseout of the credit. The credit
allowable under §29(a) must be re-
duced by an amount which bears the
same ratio to the amount of the credit
(determined without regard to §29(b)-
(1)) as the amount by which the
reference price for the calendar year in
which the sale occurs exceeds $23.50
bears to $6.00. The $3.00 in §29(a)
and the $23.50 and $6.00 must each be
adjusted by multiplying these amounts
by the 1995 inflation adjustment factor.
In the case of gas from a tight for-
mation, the $3.00 amount in §29(a)
must not be adjusted.
Section 29(c)(1) defines the term
‘‘qualified fuels’’ to include oil pro-
duced from shale and tar sands; gas
produced from geopressurized brine,
Devonian shale, coal seams, or a tight
formation, or biomass; and liquid,
gaseous, or solid synthetic fuels pro-
duced from coal (including lignite),
including such fuels when used as
feedstocks.
Section 29(d)(1) provides that the
credit is to be applied only for sale of
qualified fuels the production of which
is within the United States (within the
meaning of §638(1)) or a possession
of the United States (within the mean-
ing of §638(2)).
Section 29(d)(2)(A) requires that the
Secretary, not later than April 1 of each
calendar year, determine and publish in
the Federal Register the inflation ad-
justment factor and the reference price
for the preceding calendar year.
Section 29(d)(2)(B) defines ‘‘infla-
tion adjustment factor’’ for a calendar
year as the fraction the numerator of
which is the GNP implicit price defla-
tor for the calendar year and the

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denominator of which is the GNP
implicit price deflator for calendar year
1979. The term ‘‘GNP implicit price
deflator’’ means the first version of the
implicit price deflator for the gross
national product as computed and
published by the Department of
Commerce.
Section 29(d)(2)(C) defines ‘‘refer-
ence price’’ to mean with respect to a
calendar year the Secretary’s estimate
of the annual average wellhead price
per barrel of all domestic crude oil the
price of which is not subject to
regulation by the United States.
Section 29(d)(3) provides that in the
case of a property or facility in which
more than one person has an interest,
except to the extent provided by
regulations prepared by the Secretary,
production from the property or facility
(as the case may be) must be allocated
among the persons in proportion to
their respective interests in the gross
sales from the property or facility.
Section 29(d)(5) and (6) provides
that the term ‘‘barrel-of-oil equivalent’’
with respect to any fuel generally
means that amount of the fuel which
has a Btu content of 5.8 million.
INFLATION ADJUSTMENT
FACTOR AND REFERENCE PRICE
The inflation adjustment factor for
calendar year 1995 is 1.9439. The
reference price for calendar year 1995
is $14.62. As required by §29(d)-
(2)(A), the inflation adjustment factor
and reference price for calendar year
1995 where published in the Federal
Register on April 10, 1996 (61 Fed.
Reg. 16031).
PHASE-OUT CALCULATION
Because the calendar year 1995
reference price does not exceed $23.50
multiplied by the inflation adjustment
factor, the phaseout of the credit
provided for in §29(b)(1) does not
occur for any qualified fuel sold in
calendar year 1995.
CREDIT AMOUNT
The nonconventional source fuel
credit under §29(a) is $5.83 per barrel-
of-oil equivalent of qualified fuels
($3.00 3 1.9439). This amount was
published in the Federal Register on
April 10, 1996 (61 Fed. Reg. 16031).
DRAFTING INFORMATION
CONTACT
The principal author of this notice is
David G. McMunn of the Office of
Assistant Chief Counsel (Passthroughs
and Special Industries). For further
information regarding this notice con-
tact Mr. McMunn on (202)622-3110
(not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §355; 1.355–1.)
Rev. Proc. 96–30
SECTION 355 CHECKLIST QUESTIONNAIRE CONTENTS
1.PURPOSE
2.BACKGROUND
3.CHANGES
4.INFORMATION TO BE INCLUDED IN REQUESTS FOR RULINGS UNDER §355 OF THE INTERNAL REVE-
NUE CODE
.01Information regarding Distributing and Controlled
(1)Identification
(2)Jurisdiction
(3)Taxable year
.02Ownership of interests in Distributing and Controlled
(1)Capital structure of Distributing and Controlled immediately prior to the distribution
(2)Foreign shareholders
(3)Description of stock, securities, and other property being distributed
(a)Stock
(b)Securities
(c)Other property
(d)Timing
(e)Planned stock issuances
(f)Obtaining control
(4)Ownership of stock and securities immediately after the distribution
(a)Interests in Controlled to be held by Distributing
(i)Retention of stock, securities, or options
(ii)Retention of debt
(iii)Purpose for Distributing holding stock, securities, or options in Controlled
(b)Interests in Controlled to be held by shareholders of Distributing
(i)Distribution or exchange
(ii)Stock ownership
(iii)Securities
(iv)Surrender of stock

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(c)Interests in Controlled to be held by security holders of Distributing
(d)Receipt of consideration other than with respect to stock or securities
(i)Shareholder in dual capacity
(ii)Security holder in dual capacity
(iii)Other transfers
.03Information concerning the businesses of Distributing and Controlled
(1)Description of businesses
(2)Distributing’s Active Businesses
(a)Active conduct during the preceding 5-year period
(b)Employee information
(c)Nonemployee information
(d)Continuous ownership of an Active Business during the preceding 5-year period
(e)Change in business
(f)Separation of real property, intellectual property, or other intangible property from user
(g)Balance sheets
(h)Profit and loss statements
(3)Description of Active Businesses being transferred by Distributing to Controlled
(4)Pre-existing Controlled’s Active Businesses
(5)Indirect conduct of trade or business through ownership of stock in other corporations (Other
Corporations)
(6)Changes in ownership of an Active Business during the preceding 5-year period
(a)Identity
(b) Date
(c)Transaction
(d)Consideration
(e)Gain or loss
(7)Stock ownership during the preceding 5-year period
(a)Stock of Controlled or other Corporations continuously owned
(b)Stock of Controlled or other Corporations acquired
(i)Identity
(ii)Date and consideration
(iii)Transaction
(iv)Gain or loss
(c)Other changes in ownership
(8)Continuation of business
.04Business purpose
(1)Detailed description
(2)Corporate Business Purposes
(3)Alternative transactions
(4)Cross reference to Appendix A
(5)Non-Corporate Business Purposes
(a)General
(b)Shareholder planning
(c)Special tax status
(d)Reduction in federal taxes
(e)Representation
(6)Substantiation of business purpose
(a)Documentation
(b)Third party documentation
(7)Additional documents
(a)Regulatory filings
(b)Material prepared for directors
(c)Communications to shareholders and employees
.05Device
(1)Dispositions of stock or securities
(a)Representation
(b)Permitted purchases
(c)Other dispositions
(i)Detailed description
(ii)Consideration
(iii)Evidence of nondevice
(2)Absence of earnings and profits
(3)Non pro rata distribution

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(4)Investment and inactive assets
(a)Detailed description
(b)Explanation
(5)Liquidation or sale of assets
.06Continuity of shareholder interest
.07Disqualified distribution
.08Miscellaneous
(1)Transfers and transactions between Distributing and Controlled
(a)Contributions to capital
(b)Liabilities
(c)Investment credit property
(d)Matching of income and deductions
(2)Indebtedness
(a)Cancellation of indebtedness
(b)Continuing indebtedness
(3)Consolidated transactions
(4)Continuing transactions between Distributing and Controlled
(5)Investment company
(6)Transfers of money or property to Distributing
(7)Foreign corporation
(8)Other transactions
(9)Plan of reorganization and other relevant documents
(10)Requested rulings
(11)Presubmission conference
5.EFFECT ON OTHER DOCUMENTS
6.EFFECTIVE DATE
DRAFTING INFORMATION
APPENDIX A — BUSINESS PURPOSE GUIDELINES
1. Key employee
2. Stock offering
3. Borrowing
4. Cost savings
5. Fit and focus
6. Competition
7. Facilitating an acquisition of Distributing
8. Facilitating an acquisition by Distributing or Controlled
9. Risk reduction
APPENDIX B — RULING REQUESTS INVOLVING RETENTION OF STOCK OR OPTIONS BY DISTRIBUTING
APPENDIX C — REPRESENTATIONS REGARDING S CORPORATION STATUS
SECTION 1. PURPOSEThis revenue procedure updates Rev. Proc. 86–41, 1986–2 C.B. 716, which sets forth in a
checklist questionnaire the information that must be included in a request for rulings under
§ 355, relating to the nonrecognition of gain or loss on distributions of stock and securities of
controlled corporations.
SECTION 2. BACKGROUNDThis checklist is intended to facilitate the filing and processing of ruling requests under
§ 355. It specifies information and representations to be included so that the requests will be
as complete as possible when initially filed. Nevertheless, because the information and
representations necessary to rule on a particular transaction depend upon all the facts and
circumstances, the Service may require information or representations in addition to those set
forth in this revenue procedure.

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The general procedures of the Internal Revenue Service with respect to the issuance of
letter rulings and determination letters by the National Office are outlined in the first revenue
procedure published each year (the ‘‘annual revenue procedure’’). See, e.g., Rev. Proc. 96–1,
1996–1 I.R.B. 8. The Service also publishes a revenue procedure, generally in the first
Internal Revenue Bulletin of the year, which provides a list of those areas of the Code under
the jurisdiction of the Associate Chief Counsel (Domestic) for which the Service will not
issue advance letter rulings. See, e.g., Rev. Proc. 96–3, 1996–1 I.R.B. 82. The Service
periodically updates these revenue procedures, along with this checklist questionnaire.
Careful attention to all requirements of the most recent revenue procedures, including this
checklist questionnaire, will aid in the timely processing of ruling requests. Failure to submit
the requisite information and representations will often delay consideration of the transaction
and the issuance of a letter ruling.
SECTION 3. CHANGESThis revenue procedure substantially modifies Rev. Proc. 86–41. The principal changes are
to add to, delete, or modify the information and representations requested, and to add an
appendix that provides guidelines with respect to ruling requests involving certain corporate
business purposes. This document also revokes section 3.01(23) of Rev. Proc. 96–3, which
sets forth ‘‘no rule’’ positions regarding certain corporate business purposes.
SECTION 4. INFORMATION
TO BE INCLUDED IN
REQUESTS FOR RULINGS
UNDER §355
This section describes the information and representations to be provided in a §355 ruling
request. The presentation of the information and representations in the ruling request should
follow the organization of this section and use appropriate descriptive headings. Taxpayers are
welcome to provide a narrative description of the transaction to supplement (but not substitute
for) the presentation requested in this section.
A ruling request should address each item in this section and provide all facts relevant to
the transaction. If an item is not applicable, so state and briefly explain why.
Standard representations are set forth throughout this section and are highlighted by the
word ‘‘representation’’ in boldface type. The representations are necessary to ensure that
specific statutory and judicial requirements, and administrative ruling guidelines relating
thereto, are satisfied. Each representation should be submitted in the language requested. If a
representation cannot be submitted exactly as requested, an explanation must be given.
Deviation from the language of the representations should be avoided, except as required by
the facts being described. Unnecessary variations may delay processing the ruling request and
will not be accepted unless reasons satisfactory to the Service are submitted.
Distribution includes
exchanges
The terms ‘‘Distributing’’ and ‘‘Controlled’’ in this document refer to the ‘‘distributing
corporation’’ and ‘‘controlled corporation’’ as described in §355(a)(1)(A). References to the
term ‘‘distribution’’ include a distribution of stock or securities of Controlled with respect to
Distributing stock, an exchange of Distributing stock or securities for Controlled stock or
securities, or some combination thereof, as the context requires.
Successors of Distributing
or Controlled
Requests for information and representations regarding Distributing or Controlled include,
as the context requires, a request for information (or representations) regarding a successor of
Distributing or Controlled. For example, if Distributing will merge with an acquiring
corporation after the distribution, the representation requested in section 4.03(8) of this
revenue procedure (that is, Distributing will continue to conduct its business) should be
modified to include a similar representation under penalties of perjury by the acquiring
corporation regarding the continuing conduct of Distributing’s business after the merger, in
addition to Distributing’s representation. Similarly, the representation requested in section
4.05(1) of this revenue procedure (that is, there is no plan or intention by the Distributing
shareholders to dispose of their shares in Distributing), should be modified to include a
similar representation regarding dispositions of acquiring corporation shares by the
Distributing shareholders. If a taxpayer believes that information regarding, or a
representation by, a successor is inappropriate or should be modified, the taxpayer must
explain why.
Information regarding
Distributing and Controlled
.01
(1)Identification. State the name, employer identification number, and place and date of
incorporation of Distributing and Controlled. If Controlled is not in existence, state its
proposed name and place of incorporation. If Distributing joins in the filing of a consolidated
federal income tax return, provide the name and employer identification number of the
common parent corporation of the affiliated group.
(2)Jurisdiction. Identify the District Office that has or will have examination jurisdiction
over the return of Distributing (sometimes referred to below as the ‘‘taxpayer’’) and of
Controlled.
(3)Taxable year. State the last day of the taxable year of Distributing and Controlled.
Ownership of interests in
Distributing and Controlled
.02
(1)Capital structure of Distributing and Controlled immediately prior to the distribution.

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Under a separate heading for each corporation, provide the following information with respect
to the stock and securities of Distributing and Controlled that will be outstanding immediately
prior to the distribution:
Description of stock(a)A complete description of each class of stock, setting forth the rights and privileges of
each class, including voting or nonvoting rights, dividend and liquidation preferences or
limitations, and whether classified as common or preferred stock.
Shareholdings(b)A list of the number of shares and the percentage of each class of stock owned by each
shareholder prior to the distribution. However, if the corporation has more than 100
shareholders, the taxpayer need only list those shareholders owning 5 percent or more of any
class of stock, and state the total number of other shareholders together with the total number
of shares and the percentage that these other shareholders own of each class of stock.
Description of agreements(c)A description of any existing, planned, or intended agreements, such as a voting trust,
affecting the rights of any shareholder. However, if the corporation has more than 100
shareholders, the taxpayer need only describe agreements affecting shareholders owning
directly, or as a result of the agreement, controlling, 5 percent or more of any class of stock.
Description of securities(d)A description of any securities and all other outstanding interests (bonds, debentures,
notes, warrants, options, puts, etc.) and a brief explanation as to whether any of these items
should be considered a stock interest.
Foreign shareholders(2)Foreign shareholders. If Distributing has any foreign shareholders, state whether: (i)
Distributing or Controlled was a United States real property holding corporation (as defined
in §897(c)(2)) at any time during the 5-year period ending on the date of the distribution,
and (ii) Distributing or Controlled will be a United States real property holding corporation
immediately after the distribution. See §367(e)(1) and §897. In addition, if Distributing is
publicly traded, provide a list of all foreign persons owning 5 percent or more of Distributing
stock either before or after the distribution. If Distributing is not publicly traded, provide a
list of all foreign persons owning stock of Distributing either before or after the distribution.
See section 4.08(7) of this revenue procedure for additional information regarding foreign
parties.
Stock, securities, and
property being distributed
(3)Description of stock, securities, and other property being distributed.
(a)Stock. State the number of shares and percentage of each class of stock of Controlled
being distributed. In addition, if preferred stock is being distributed and it is contended that
this stock is not ‘‘section 306 stock,’’ within the meaning of §306(c), fully explain the
reasons for this contention.
(b)Securities. State the principal amount of each series of securities of Controlled being
distributed.
(c)Other property. Provide complete details as to any property, other than stock and
securities of Controlled, to be distributed or received in the transaction including, but not
limited to, cash, stock rights, warrants, or the payment of expenses incurred in connection
with the transaction (see §356).
Date of distribution(d)Timing. State the date of the distribution and whether all the stock, securities, and other
property will be distributed on that date. If all the stock, securities, and other property are not
being distributed on the same date, state the approximate length of, and the reasons for, the
delay in the distribution.
Control(e)Planned stock issuance, etc. Describe any planned or intended stock issuances,
redemptions, or dispositions of Controlled shares. Explain the effect of any of these
transactions on the distribution-of-control requirement of §355(a)(1)(D), and if property is
being transferred from Distributing to Controlled, the effect on the control-immediately-after
requirement of §368(a)(1)(D).
Obtaining control(f) Obtaining control. State whether Distributing has modified or will modify its ownership
of Controlled stock, such as in a recapitalization, within the 5-year period preceding the
distribution with the result that Distributing obtained or will obtain control of Controlled, as
defined in §368(c). Provide complete details, including the information requested in section
4.08(8) of this revenue procedure, with respect to such modifications.
(4) Ownership of stock and securities in Controlled immediately after the distribution.
Post-distribution ownership
of interests in Controlled
by Distributing
(a)Interests in Controlled to be held by Distributing (
see §1.355–2(e) of the Income Tax
Regulations).
(i)Retention of stock, securities, or options. State the number of shares and percentage of
each class of stock in, and the principal amount of each series of securities of, Controlled to
be held by Distributing after the distribution and the length of time Distributing will hold this
interest. Describe any options that Distributing will hold after the distribution to acquire stock
in Controlled and the length of time Distributing will hold these options.

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(ii)Retention of debt. If Controlled will be indebted to Distributing after the distribution of
Controlled stock, submit the following REPRESENTATION: The indebtedness owed by the
controlled corporation to the distributing corporation after the distribution of the controlled
corporation stock will not constitute stock or securities.
(iii)Purpose for Distributing holding stock, securities, or options in Controlled. If
Distributing will hold stock, securities, or options in Controlled after the distribution, explain
the reasons therefor and why this should not be viewed as in pursuance of a plan having as
one of its principal purposes avoiding federal income tax. See Appendix B of this revenue
procedure regarding favorable rulings with respect to the retention of stock, securities, or
options. State whether a distribution of all the stock or securities of Controlled would be
treated to any extent as a distribution of ‘‘other property’’ under §356.
Post-distribution ownership
of interests in Controlled
by shareholders of
Distributing
(b)Interests in Controlled to be held by shareholders of Distributing.
(i)Distribution or exchange. State whether the distribution of Controlled stock will be pro
rata or non pro rata with respect to the shareholders of Distributing. Fully describe the
transaction between Distributing and its shareholders.
(ii)Stock ownership. State the number of shares and the percentage of each class of stock
outstanding in Distributing and Controlled that will be owned by each shareholder
immediately after the distribution. However, if there will be more than 100 shareholders
immediately after the distribution, the taxpayer need only list those shareholders who will
own 5 percent or more of any class of stock, and state the expected total number of other
shareholders together with the expected total number of shares and the expected percentage
that these other shareholders will own of each class of stock.
(iii)Securities. Identify any shareholders of Distributing receiving securities of Controlled
and state the principal amount of each series of securities to be received in the transaction.
With respect to each shareholder, state the principal amount of each series of Distributing
securities to be surrendered in the transaction, or, if no securities are being exchanged, so
state. See §1.355–2(f)(1).
(iv)Surrender of stock. If one or more Distributing shareholders will surrender
Distributing stock in the transaction, submit the following
REPRESENTATION: The fair market
value of the controlled corporation stock and other consideration to be received by each
shareholder of the distributing corporation will be approximately equal to the fair market
value of the distributing corporation stock surrendered by the shareholder in the exchange.
Post-distribution ownership
of interests in Controlled
by security holders of
Distributing
(c)Interests in Controlled to be held by security holders of Distributing. Identify those
security holders of Distributing receiving Controlled stock, the total number of shares of each
class of stock being received, and the principal amount of the securities of Distributing being
exchanged. Identify those security holders of Distributing receiving securities of Controlled,
the principal amount being received by each holder, and the principal amount of the securities
of Distributing being exchanged. See §1.355–2(f)(1). If no securities are being exchanged, so
state. If the securities are, or, immediately after the distribution, will be, held by more than
100 security holders, identify only those security holders that will own 5 percent or more of
the outstanding shares of any class of Controlled stock or of any outstanding series of
Controlled securities immediately after the distribution.
(d)Receipt of consideration other than with respect to stock or securities.
(i)Shareholder in dual capacity. Submit the following
REPRESENTATION: No part of the
consideration to be distributed by the distributing corporation will be received by a
shareholder as a creditor, employee, or in any capacity other than that of a shareholder of
the corporation.
(ii)Security holder in dual capacity. If consideration will be distributed to security
holders, submit the following REPRESENTATION: No part of the consideration to be
distributed by the distributing corporation will be received by a security holder as an
employee or in any capacity other than that of a security holder of the corporation.
(iii)Other transfers. State whether the shareholders or security holders of Distributing will
transfer or surrender any property in the transaction other than stock or securities of
Distributing. If so, provide full details.
Information concerning
the businesses of
Distributing and Controlled
(see generally §1.355–3)
.03
(1)Description of businesses. Describe each line of business engaged in by Distributing,
Controlled, and their respective subsidiaries, whether or not the business will be relied upon
to meet the requirements of §355(b). Note which corporations are engaged in each line of
business.
Distributing’s Active
Businesses
(2)Distributing’s Active Businesses. Submit a complete description of each trade or
business that will be relied upon to meet the requirements of §355(b) (an ‘‘Active
Business’’), that is conducted directly by Distributing, and that will be retained by
Distributing. Provide the following information with respect to each such Active Business:

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(a)Active conduct during the preceding 5-year period. Provide all information necessary
to establish that the Active Business is a trade or business that has been actively conducted
for the entire 5-year period ending on the date of the distribution (within the meaning of
§ 1.355–3(b)(2) and (3)). In general, the description should conclusively show that substantial
managerial and operational activities have been directly carried on by the Active Business
during each of the past 5 years.
Employee information(b)Employee information. If the Active Business employed fewer than 50 full-time
employees during any of the past 5 years, submit separate lists for each of the past 5 years
showing the job titles of the Active Business’ employees, the function (managerial,
operational, or other) of each position, and the number of persons employed in each position.
Include a brief description of the type of duties performed by each category of employee
during each of these years.
Nonemployee information(c)Nonemployee information. If Distributing is required to submit the employee
information specified in section 4.03(2)(b) of this revenue procedure with respect to an Active
Business, also state whether Distributing uses persons who are not employees, such as
independent contractors. If so, include a brief description of the duties they perform, and the
percentage of the activities they perform for the Active Business.
Continuous ownership of
Active Businesses
conducted during 5-year
period
(d)Continuous ownership of an Active Business during the preceding 5-year period. State
whether the Active Business has been continuously conducted, within the meaning of
§ 1.355–3(b), by Distributing for the 5-year period ending on the date of distribution. Give
the date Distributing commenced conduct of the Active Business or acquired the Active
Business. If an Active Business has not been continuously conducted by Distributing for such
5-year period, see section 4.03(6) of this revenue procedure.
Change in business during
5-year period
(e)Change in business. Describe any substantial change during the preceding 5-year
period in the type of business activity conducted or the method of conducting business, such
as substantial changes in: products or services offered, production capacity, assets owned or
used, technology employed, sales or distribution channels, or locations. If the preceding
5-year period includes any time during which there was no business activity, or a significant
amount of time during which there was a substantial reduction in business activity, identify
the period of time, the type and amount of business activity during this period, and the
reasons for the cessation or reduction in activity.
Separation of real
property, intellectual
property, or other
intangible property from
user
(f)Separation of real property, intellectual property, or other intangible property from
user. State whether all or a portion of any real property, intellectual property, or other
intangible property historically occupied or used by one business will be separated in the
transaction from that business. If so, describe the property. State whether the business
formerly using the property will continue to use the property after the transaction, and the
terms upon which it will be allowed to use the property. Describe any other planned use of
the property after the transaction. Explain the reason for separating the ownership of the
property from its historic user.
Balance sheets(g)Balance sheets. Provide a copy of the most recent balance sheet of Distributing
(including all applicable notes). The balance sheet should not be limited to assets and
liabilities of Distributing’s Active Businesses. Also submit any consolidated balance sheets
prepared for financial accounting purposes that include Distributing.
Profit and loss statements(h)Profit and loss statements. Submit separate unconsolidated profit and loss statements
(including all applicable notes) for each of the past 5 years for each Active Business. The
statements must show that each business has had gross receipts and operating expenses
(including employee expenses such as payroll withholding taxes) representative of the active
conduct of a trade or business for each of the past 5 years. Submit the following
REPRESENTATION: The 5 years of financial information submitted on behalf of the distributing
corporation is representative of the corporation’s present operation, and with regard to such
corporation, there have been no substantial operational changes since the date of the last
financial statements submitted.
Description of Active
Businesses transferred to
Controlled
(3)Description of Active Businesses being transferred by Distributing to Controlled. If, in
connection with the plan, Distributing transfers all or part of the assets of one or more of its
Active Businesses (see §1.355–3(c), example (4)) to either a newly formed or pre-existing
Controlled, identify and submit a complete description of each Active Business or part of an
Active Business being transferred. Submit the information and representation required by
section 4.03(2)(a) through (h) of this revenue procedure for each such Active Business, or part
of an Active Business, being transferred. If property will be transferred from Distributing to
Controlled, submit a pro forma balance sheet for Controlled reflecting the transfer of assets to
Controlled and all liabilities to be assumed or to which the property transferred will be subject.
Description of pre-existing
Controlled’s Active
Businesses
(4)Pre-existing Controlled’s Active Businesses. If Controlled is a pre-existing corporation,
submit a complete description of each Active Business conducted directly by Controlled.

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Submit the information and representation required by section 4.03(2)(a) through (h) of this
revenue procedure with respect to each such Active Business, treating references to
Distributing as references to Controlled, as appropriate.
Indirect conduct of trade
or business
(5)Indirect conduct of trade or business through ownership of stock in other
corporations. If either Distributing or Controlled is not directly engaged in an Active
Business but will be so engaged indirectly through ownership of stock and securities in one or
more corporations controlled by it (‘‘Other Corporations’’) immediately after the distribution,
submit the information and representation required by sections 4.03(2)(a) through (h) of this
revenue procedure (treating, for this purpose, each Other Corporation as Distributing or
Controlled, as appropriate). In addition, if Distributing or Controlled is
not directly engaged in an Active Business, submit the following
REPRESENTATION:
Immediately after the distribution, at least 90 percent of the fair market value of the gross
assets of [insert the name of the corporation so indirectly engaged] will consist of the stock
and securities of controlled corporations that are engaged in the active conduct of a trade or
business as defined in §355(b)(2). See section 3.04 of Rev. Proc. 77–37, 1977–2 C.B. 568,
570.
Active Businesses
acquired during 5-year
period
(6)Changes in ownership of an Active Business during the 5-year period ending on the
date of distribution. If an Active Business that is directly conducted by Distributing,
Controlled, or an Other Corporation has been acquired by that corporation during the 5-year
period ending on the date of distribution, identify the Active Business that was acquired and
provide the following information with respect to that Active Business:
(a)Identity. Identify the party from whom the business was acquired, and the transferor’s
relationship, if any, to Distributing or its shareholders.
(b)Date. State the date the business was acquired and the period of time the business had
been previously conducted by Distributing’s, Controlled’s, or Other Corporation’s predecessor
in interest.
(c)Transaction. Describe the transaction in which the business was acquired. For example,
was the business acquired in a reorganization under §368(a)(1), by purchase, or by some
other means? If a letter ruling was issued with respect to the transaction, attach a copy.
(d)Consideration. State the consideration given in the acquisition.
(e)Gain or loss. State whether gain or loss was recognized, in whole or in part, to any
party to the transaction and whether the basis of the assets acquired was determined, in whole
or in part, by reference to the transferor’s basis.
(7)Stock ownership during the preceding 5-year period (
see §355(b)(2)(D)).
Stock continuously owned
during 5-year period
(a)Stock of Controlled or Other Corporations continuously owned during the preceding
5-year period. Identify Controlled and Other Corporations whose shares have been
continuously held by Distributing or Controlled for the 5-year period ending on the date of
distribution.
Stock acquired during
5-year period
(b)Stock of Controlled or Other Corporations acquired by Distributing, Controlled, or
Other Corporations during the preceding 5-year period. If the stock of Controlled or Other
Corporations has been acquired by Distributing, Controlled, or Other Corporations during the
5-year period ending on the date of the distribution, identify the stock that was acquired and
provide the following information with respect to that stock:
(i)Identity. Identify the party from whom the stock was acquired and the transferor’s
relationship, if any, to Distributing or its shareholders.
(ii)Date and consideration. State the date the stock was acquired and the consideration
given in the acquisition.
(iii)Transaction. Describe the transaction in which the stock was acquired. For example,
was the stock acquired in a §368(a)(1) reorganization, by purchase, or by some other means?
State whether control was acquired in a transaction in which Distributing transferred cash or
other liquid or inactive assets to Controlled. See section 4.01(31) of Rev. Proc. 96–3. If a
letter ruling was issued with respect to the transaction, attach a copy.
(iv)Gain or loss. State whether gain or loss was recognized, in whole or in part, to any
party to the transaction and whether the basis of the stock acquired was determined, in whole
or in part, by reference to the transferor’s basis.
Other changes in
ownership during 5-year
period
(c)Other changes in ownership. Provide complete details concerning any change in
ownership of the stock of Distributing, Controlled, or Other Corporations during the 5-year
period ending on the date of the distribution that is not fully described under section
4.03(7)(b) of this revenue procedure. For this purpose, a change of ownership includes, but is
not limited to, acquisitions, redemptions, recapitalizations, stock dividends, and sales.
Information regarding sales of stock to which the issuing corporation was not a party need not
be provided if: (i) the sale occurred on a recognized stock exchange or in an established
market; and (ii) both the purchaser and the seller held less than 5 percent of the corporation’s
stock both before and after the sale.

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Continuation of business(8)Continuation of business. If the transaction involves the vertical division of a single
Active Business, submit the following
REPRESENTATION: Following the transaction, the
distributing and controlled corporations will each continue, independently and with its
separate employees, the active conduct of its share of all the integrated activities of the
business conducted by the distributing corporation prior to consummation of the transaction.
If the transaction involves the separation of two or more Active Businesses, submit the
following
REPRESENTATION: Following the transaction, the distributing and controlled
corporations will each continue the active conduct of its business, independently and with its
separate employees. Additionally, if, following the transaction, Distributing and Controlled
will share the services of any employees, identify these employees, specify the services to be
performed, the length of time the employees will be shared, the compensation arrangements,
and explain why the services of these employees will be shared.
In addition, describe any planned or intended substantial reduction in business activity for
any Active Business. Generally, a substantial reduction in business activity does not include a
vertical division of a single Active Business where Distributing and Controlled together
continue all of the integrated activities of the Active Business.
Business purpose (
see
generally
§1.355–2(b))
.04
(1)Detailed Description. Describe in detail each purpose (whether or not a corporate
business purpose) for the distribution of the stock of Controlled.
(2)Corporate Business Purposes. Explain which purposes described in section 4.04(1) of
this revenue procedure are corporate business purposes within the meaning of §1.355–2(b)(2)
(‘‘Corporate Business Purposes’’). Describe how each Corporate Business Purpose is a real
and substantial nonfederal tax purpose germane to the business of Distributing, Controlled, or
the affiliated group (as defined in §1.355–3(b)(4)(iv)) to which Distributing belongs. In
addition, explain the business exigencies that require the distribution at this time. Submit the
following
REPRESENTATION: The distribution of the stock, or stock and securities, of the
controlled corporation is carried out for the following corporate business purposes: [list
these Corporate Business Purposes]. The distribution of the stock, or stock and securities, of
the controlled corporation is motivated, in whole or substantial part, by one or more of these
corporate business purposes.
Alternative transactions(3)Alternative transactions. Explain why each Corporate Business Purpose cannot be
achieved through a nontaxable transaction that does not involve the distribution of stock of
Controlled and which is neither impractical nor unduly expensive. For example, in appropriate
cases, possible alternative transactions might include the transfer of assets to a partnership or
limited liability company. If a Corporate Business Purpose can be achieved through a
nontaxable alternative transaction that would be impractical or unduly expensive, fully
describe the reason the alternative transaction would be impractical or the additional expense
that would be incurred by using the alternative transaction instead of the proposed transaction.
An alternative transaction that will cause the loss of a favorable special tax status, such as an
existing S corporation election, will ordinarily be viewed as unduly expensive.
Appendix A(4)Cross reference to Appendix A. Appendix A of this revenue procedure provides
guidelines that the Service will use, for ruling purposes, in evaluating whether a distribution
satisfies the corporate business purpose requirement in certain situations and specifies
information to be submitted with respect to the following business purposes: key employee,
stock offering, borrowing, cost savings, fit and focus, competition, facilitating an acquisition
of Distributing, facilitating an acquisition by Distributing or Controlled, and risk reduction.
The business purposes described in Appendix A of this revenue procedure are not an
exclusive list of Corporate Business Purposes for which the Service will issue a favorable
ruling. If a purpose for the transaction is not described in Appendix A of this revenue
procedure, the taxpayer should follow section 4.04 of this revenue procedure to establish that
the distribution satisfies the corporate business purpose requirement.
Non-Corporate Business
Purposes
(5)Non-Corporate Business Purposes.
(a)General. If the transaction will enable Distributing, Controlled, or Other Corporations
to effect a reduction in federal taxes, or if it appears that the transaction will achieve one or
more other non-Corporate Business Purposes, the taxpayer must convince the Service by clear
and convincing evidence that the distribution is motivated in whole or substantial part by one
or more Corporate Business Purposes in order to obtain a favorable ruling.
Shareholder planning(b)Shareholder planning. State whether a purpose for the distribution is to facilitate the
personal planning (such as estate planning or gifts) of any shareholder. If the answer is in the
affirmative, provide the details.
Special tax status(c)Special tax status. State whether Distributing, Controlled, or any Other Corporation is,
plans to become, will cease to be, or will become eligible to become an S corporation, real
estate investment trust, insurance company, bank, savings and loan, controlled foreign
corporation, or other corporation with a special federal tax status. If so, describe the special
tax status and the date it was or will become effective, will cease to be effective, or when the

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corporation will become eligible. If either Distributing or Controlled will be eligible to elect S
corporation status after the distribution, see Appendix C.
Description of any
reduction in federal taxes
(d)Reduction in federal taxes. Describe any reduction in federal taxes of Distributing,
Controlled, or any Other Corporations that can reasonably be expected to result from the
transaction. For this purpose, nonrecognition of income or gain to the shareholders or
corporation resulting from the application of §355 or §361 is disregarded.
Representation regarding
potential non-Corporate
Business Purpose
(e)Representation. In order to lessen the Service’s concern about a potential non-
Corporate Business Purpose, the taxpayer, in appropriate cases, may wish to represent that it
will engage in a specific course of action (such as making or not making an election) that
obviates the potential avoidance of federal taxes or other non-Corporate Business Purpose.
(6)Substantiation of business purpose.
Substantiation(a)Documentation. The taxpayer must provide substantiation of one or more Corporate
Business Purposes that motivate the transaction in whole or substantial part. The type and
extent of the substantiation will necessarily vary depending on the described business purpose
and facts of the particular case. Accordingly, the taxpayer should submit documentation that
provides factual support for the Corporate Business Purposes. The Service recognizes that a
particular transaction may be undertaken for more than one Corporate Business Purpose.
Generally, satisfying the requirements of this section 4.04(6) of this revenue procedure with
respect to one Corporate Business Purpose that motivates the transaction, in substantial part,
will suffice in such cases.
Third party documentation(b)Third party documentation. If the transaction is being undertaken at the request of, or
pursuant to the advice or analysis of, persons other than Controlled or Distributing, explain
fully. Provide documentation of such third party requests, advice, or analysis to substantiate
the business purpose for the distribution. Such documentation should include an explanation
of the third party’s qualifications to speak to the matter.
Business purposes for which third party documentation may be necessary include, for
example, risk reduction, cost savings, facilitating a stock offering or borrowing, obtaining
regulatory relief, improving credit, and preserving a franchise. Third party documentation
prepared specifically for submission with the taxpayer’s ruling request must contain an
acknowledgement that the documentation will be submitted to the Internal Revenue Service
for use in determining the federal tax consequences of the transaction.
(7)Additional documents.
Regulatory filings(a)Regulatory filings. Provide copies of any proxy statements, information statements, or
prospectuses filed or prepared in connection with the distribution or any related transaction.
List and briefly describe any other documents that have been or will be filed with (or
prepared for) any federal, state, local, or foreign regulatory body (such as the Securities and
Exchange Commission) by the taxpayer in connection with the distribution. The Service may
request copies of some or all such documents in the course of analyzing the ruling request.
Material prepared for
directors
(b)Material prepared for directors. Attach a copy of any materials that relate to the
purpose for the distribution and were prepared for or presented to the taxpayer’s board of
directors, and any relevant portions of the board’s minutes.
Communications to
shareholders and
employees
(c)Communications to shareholders and employees. Attach a copy of any press releases
relating to the distribution. Attach copies of any letters or memoranda relating to the
distribution that the taxpayer or its officers sent to the taxpayer’s shareholders. In addition,
attach copies of the taxpayer’s written statements to its employees that discuss any purpose
for the distribution.
Device (
see generally
§ 1.355–(2)(d))
.05
(1)Dispositions of stock or securities.
(a)Representation. Submit the following REPRESENTATION: There is no plan or intention
by the shareholders or security holders of the distributing corporation to sell, exchange,
transfer by gift, or otherwise dispose of any of their stock in, or securities of, either the
distributing or controlled corporation after the transaction. For publicly traded companies,
the taxpayer may instead submit the following REPRESENTATION: There is no plan or
intention by any shareholder who owns 5 percent or more of the stock of the distributing
corporation, and the management of the distributing corporation, to its best knowledge, is not
aware of any plan or intention on the part of any particular remaining shareholder or
security holder of the distributing corporation to sell, exchange, transfer by gift, or otherwise
dispose of any stock in, or securities of, either the distributing or controlled corporation after
the transaction.
Purchases of stock by
Distributing or Controlled
(b)Permitted purchases. For ruling purposes, the Service will treat purchases by either
Distributing or Controlled of its stock after the transaction as not violating the device
requirement of §355(a)(1)(B) provided that:
(i)there is a sufficient business purpose for the stock purchase;

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(ii)the stock to be purchased is widely held;
(iii)the stock purchases will be made in the open market; and
(iv)there is no plan or intention that the aggregate amount of stock purchases will equal or
exceed 20 percent of the outstanding stock of the corporation.
Submit the following
REPRESENTATION: There is no plan or intention by either the
distributing corporation or the controlled corporation, directly or through any subsidiary
corporation, to purchase any of its outstanding stock after the transaction, other than through
stock purchases meeting the requirements of section 4.05(1)(b) of Rev. Proc. 96–30.
If the stock purchases do not meet the requirements of this paragraph (b), the Service will
consider ruling on whether the purchases violate the device requirement of §355(a)(1)(B)
after considering all of the facts and circumstances of each case.
Information regarding
planned dispositions of
stock or securities
(c)Other dispositions. If a plan or intent to dispose exists (including stock purchases that
meet the requirements of section 4.05(1)(b) of this revenue procedure), provide the following
information:
(i)Detailed description. Give complete details concerning the transaction, including any
agreements existing between the parties and the number of shares of each class of stock or
the amount of each series of securities that will be disposed of by each shareholder or
security holder.
(ii)Consideration. State the consideration to be received by each shareholder or security
holder.
(iii)Evidence of nondevice. Explain any special circumstances indicating why the
disposition should not be viewed as a device, such as proportionate sales of Distributing and
Controlled stock by the shareholder.
Absence of earnings and
profits
(2)Absence of earnings and profits. If the taxpayer contends that the distribution should
not be considered to be a device because of an absence of earnings and profits (see §1.355–
2(d)(5)(ii)), submit the following
REPRESENTATIONS:
(a)The distributing corporation and the controlled corporation have no accumulated
earnings and profits at the beginning of their respective taxable years;
(b)The distributing corporation and the controlled corporation will have no current
earnings and profits as of the date of the distribution;
(c)No distribution of property by the distributing corporation immediately before the
transaction would require recognition of gain resulting in current earnings and profits for the
taxable year of the distribution; and
(d)The distributing corporation is not aware of, nor is the distributing corporation
planning or intending, any event that will result in the distributing corporation or the
controlled corporation having positive current or accumulated earnings and profits after the
distribution.
Distribution qualifying as
an exchange
(3)Non pro rata distribution. State whether all or any part of the distribution, if considered
taxable, would qualify as an exchange under §302(a) or §303(a).
Investment assets(4)Investment and inactive assets. Under a separate heading for each corporation, provide
the following information with respect to Distributing, Controlled, or Other Corporations:
(a)Detailed description. Provide a description and valuation of the investment assets, and
other assets that are not related to the reasonable needs of the Active Businesses of
Distributing, Controlled, or Other Corporations; and
(b) Explanation. Explain why Distributing, Controlled, or Other Corporations will hold
these assets.
Liquidation or sale of
assets
(5)Liquidation or sale of assets. Submit the following REPRESENTATION: There is no plan
or intention to liquidate either the distributing or controlled corporation, to merge either
corporation with any other corporation, or to sell or otherwise dispose of the assets of either
corporation after the transaction, except in the ordinary course of business. Alternatively,
describe the subsequent transaction.
Continuity of shareholder
interest (see generally
§ 1.355–2(c))
.06The taxpayer must explain how the continuity of interest requirement will be satisfied.
Generally, the Service will view this requirement as satisfied if one or more persons who,
directly or indirectly, were the owners of the enterprise prior to the distribution own, in the
aggregate, 50 percent or more of the stock in each of the modified corporate forms in which
the enterprise is conducted after the separation. In appropriate cases, the Service may require
a continuity of interest representation from the taxpayer.
Disqualified distribution.07Explain in detail why the distribution of Controlled stock, or of Controlled stock and
securities, will not be a disqualified distribution within the meaning of §355(d)(2). Generally,
the explanation should set forth facts establishing that, taking into account the application of
§ 355(d)(6), (7), and (8), immediately after the distribution: (i) no person holds disqualified
stock in Distributing that constitutes a 50 percent or greater interest in Distributing; and (ii)
no person holds disqualified stock in Controlled that constitutes a 50 percent or greater

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interest in Controlled. It is not necessary for the taxpayer to submit information accounting
for all of the stock of Distributing or Controlled if, by providing information with respect to a
smaller amount of stock, it can establish that the distribution will not be a disqualified
distribution.
Miscellaneous.08
(1)Transfers and transactions between Distributing and Controlled.
Contributions to capital
Section 351
(a)Contributions to capital. Provide complete details concerning any transfers of property
by Distributing to Controlled in anticipation of or in connection with the transaction. For
ruling purposes, such transfers ordinarily will be treated as occurring in connection with a
reorganization pursuant to §368(a)(1)(D). If a transfer of property from Distributing to
Controlled will not qualify as a reorganization pursuant to §368(a)(1)(D), and the taxpayer
contends that §351 applies to the transaction, submit the information and representations
specified in Rev. Proc. 83–59, 1983–2 C.B. 575, as modified or superseded, or explain why
an item is not being submitted.
Liabilities(b)Liabilities. If Controlled is assuming liabilities or receiving assets subject to liabilities,
submit the following
REPRESENTATIONS:
(i)The total adjusted bases and the fair market value of the assets transferred to the
controlled corporation by the distributing corporation each equals or exceeds the sum of the
liabilities assumed by the controlled corporation plus any liabilities to which the transferred
assets are subject; and
(ii)The liabilities assumed in the transaction and the liabilities to which the transferred
assets are subject were incurred in the ordinary course of business and are associated with
the assets being transferred.
Investment credit
recapture representation
(c)Investment credit property. If any property is being transferred between Distributing
and Controlled, state whether any investment credit determined under §46 has been (or will
be) claimed with respect to any of such property. If the answer is in the affirmative, submit
the following
REPRESENTATION: The income tax liability for the taxable year in which
investment credit property (including any building to which §47(d) applies) is transferred
will be adjusted pursuant to §50(a)(1) or (a)(2) (or §47, as in effect before amendment by
Public Law 101–508, Title 11, 104 Stat. 1388, 536 (1990), if applicable) to reflect an early
disposition of the property. Alternatively, explain why no increase in tax will be required
under §50 (or §47, as in effect before such amendment) as a result of the transaction.
Matching of income and
deductions
(d)Matching of income and deductions. State the overall method of accounting of
Distributing and Controlled. Further, state whether the transaction involves or will result in a
situation in which one party recognizes income but another party recognizes the deductions
associated with such income or one party owns property but another party recognizes the
income associated with such property. See, for example, Notice 95–53, 1995–44 I.R.B. 21. If
one or more parties use the cash method of accounting, explain the extent to which any
actions have been or will be taken that are not in the ordinary course of business and that
might affect the timing or the amount of any income or deduction to be recognized by a cash
basis party to the transaction. See, for example, Rev. Rul. 80–198, 1980–2 C.B. 113. In
addition, submit a statement as to whether any income items, such as accounts receivable, or
any items resulting from a sale, exchange or disposition that would have resulted in income to
Distributing, or any items of expense, will be transferred to Controlled. If any of these items
are being transferred, fully explain. Further, submit the following REPRESENTATION: The
distributing corporation neither accumulated its receivables nor made extraordinary payment
of its payables in anticipation of the transaction. If Distributing uses the cash method of
accounting or a similar method and Controlled uses the accrual method or a similar method, a
closing agreement will be required unless the taxpayer submits the following REPRESENTA-
TION: No income items, including accounts receivable or any item resulting from a sale,
exchange or disposition of property, that would have resulted in income to the distributing
corporation, and no items of expense will be transferred to the controlled corporation if the
distributing corporation has earned the right to receive the income or could claim a
deduction for the expense under the accrual or similar method of accounting.
(2)Indebtedness.
Debt cancellation(a)Cancellation of indebtedness. If any indebtedness has been or will be cancelled in
connection with the transaction, give complete details concerning the principal amount of the
indebtedness, the circumstances under which it arose, and the date and method under which
the indebtedness will be discharged.
Intercorporate
indebtedness
(b)Continuing indebtedness. Submit the following REPRESENTATION: No intercorporate
debt will exist between the distributing corporation and the controlled corporation at the time
of, or subsequent to, the distribution of the controlled corporation stock. Alternatively, submit
a full description of all existing, planned, or intended debt between Distributing and

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Controlled, including complete details as to principal amounts, terms, and reasons for the
issuance. Include copies of any instruments evidencing the intercorporate indebtedness. If any
debt exists between Controlled, as debtor, and Distributing, as creditor, state whether such
debt arose in connection with a transfer of assets by Distributing to Controlled. If so, explain
the circumstances.
Consolidated transactions(3)Consolidated transactions. If Distributing joins in the filing of a consolidated federal
income tax return, submit the following
REPRESENTATION: Immediately before the
distribution, items of income, gain, loss, deduction, and credit will be taken into account as
required by the applicable intercompany transaction regulations (See §1.1502–13 and
§1.1502–14 as in effect before the publication of T.D. 8597, 1995–32 I.R.B. 6, and as
currently in effect; §1.1502–13 as published by T.D. 8597). Further, Distributing’s excess
loss account with respect to the Controlled stock will be included in income immediately
before the distribution (See §1.1502–19).
Future intercorporate
transactions
(4)Continuing transactions between Distributing and Controlled (or two or more
controlled corporations). Describe in detail any continuing, planned, or intended transactions
between Distributing and Controlled following the distribution, either directly or indirectly
(such as through a partnership), or between an Other Corporation and a corporation from
which it will be separated. In addition, submit the following
REPRESENTATION: Payments
made in connection with all continuing transactions, if any, between the distributing and
controlled corporations, will be for fair market value based on terms and conditions arrived
at by the parties bargaining at arm’s length.
Investment company(5)Investment company. If assets are transferred by Distributing to Controlled, or if
liabilities owed by Controlled to Distributing are cancelled, submit the following
REPRESENTATION: No two parties to the transaction are investment companies as defined in
§ 368(a)(2)(F)(iii) and (iv).
Consideration received by
Distributing
(6)Transfers of money or property to Distributing. Set forth all consideration received by
Distributing, including distributions by Controlled to Distributing, in connection with the
transaction. Describe any receipt of money or property by Distributing from Controlled in
contemplation of the distribution (other than in the ordinary course of business).
Foreign corporation(7)Foreign corporation. State whether Distributing, Controlled, or any Other Corporation
is a foreign corporation and whether any such foreign corporation is a passive foreign
investment corporation (as defined in §1296(a)), or a controlled foreign corporation (as
defined in §957) both before and after the distribution. See §§367(b), 367(e)(1), 897, and
1248(f).
Other transactions(8)Other transactions. State whether there have been, or will be, any related transactions,
and, if so, describe these other transactions and fully explain their relationship to, and impact
on, the present transaction. Even if the transaction is thought to be unrelated, provide full
details if it is contemplated that any stock is to be issued or redeemed by Distributing,
Controlled, or Other Corporations, other than that already described as being distributed
pursuant to the plan. Provide a description of any plan or intention to issue, redeem, or alter
any rights in, such as voting rights, shares of stock of Distributing, Controlled, or Other
Corporations.
Plan of reorganization and
other relevant documents
(9)Plan of reorganization and other relevant documents. Submit a copy of the plan of
reorganization or distribution. Alternatively, state why a copy is not available. In addition,
submit a copy of any indemnification and tax sharing agreements to which Distributing or
Controlled is a party.
If these or any other documents requested in this revenue procedure become available after
filing the ruling request, submit copies as soon as possible.
Requested rulings(10)Requested rulings. List the rulings being requested in the exact wording desired, and
provide statutory, regulatory, or other authority for their issuance.
Presubmission
conference
(11)Presubmission conference. Prior to submitting a §355 ruling request, the taxpayer
may request a conference with the Office of Assistant Chief Counsel (Corporate). A
presubmission conference is particularly recommended if the transaction does not satisfy all
of the requirements or relevant guidelines of this revenue procedure. The taxpayer must
submit a description of the transaction, including the name of the taxpayer, and a
memorandum of the issues to be discussed at the conference, at least three business days
before the conference. The taxpayer must provide a power of attorney for each representative
attending the conference. In appropriate cases, the Service will consider conducting the
presubmission conference by telephone. For additional information regarding presubmission
conferences, see the annual revenue procedure referred to in section 2 of this revenue
procedure and contact the Office of the Assistant Chief Counsel (Corporate) at (202)
622-7710 (not a toll-free call).

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SECTION 5. EFFECT ON
OTHER DOCUMENTS
.01Rev. Procs. 91–63, 91–62, and 86–41 are superseded. Section 3.01(23) of Rev. Proc.
96–3 is revoked.
.02The item relating to the §355 Checklist Questionnaire in section 9.01 of Rev. Proc.
96–1 is amended to read as follows: Rev. Proc. 96–30, 1996–19 I.R.B. 8.
.03Section 9.02 of Rev. Proc. 96–1 is modified to replace the reference to Rev. Proc. 91–
63 with a reference to section 4.05(1)(b) of Rev. Proc. 96–30.
SECTION 6. EFFECTIVE
DATE
This revenue procedure will apply to all ruling requests postmarked, or, if not mailed,
received, on or after June 5, 1996. However, the Service may ask the taxpayer to submit
information specified in this revenue procedure for any ruling requests submitted prior to that
date. The revocation of section 3.01(23) of Rev. Proc. 96–3 is effective on date May 6, 1996.
The Service will entertain ruling requests on the business purposes listed in Appendix A of
this revenue procedure whether the ruling request arrives before, on, or after the publication
date of this revenue procedure.
DRAFTING INFORMATIONThe principal author of this revenue procedure is Dean P. Lekos of the Office of Assistant
Chief Counsel (Corporate). For further information regarding this revenue procedure, contact
Mr. Lekos on (202) 622-7550 or Mr. Howard W. Staiman on (202) 622-7750 (not toll-free
calls).
APPENDIX A
SECTION 1. BUSINESS PURPOSE GUIDELINES
Appendix A provides guidelines that the Service will use, for ruling purposes, in evaluating whether a distribution satisfies
the corporate business purpose requirement in certain situations. These guidelines apply in addition to the requirements
specified in section 4.04 of this revenue procedure.
The business purposes described in this Appendix A are not an exclusive list of Corporate Business Purposes for which
the Service will issue a favorable ruling. If a purpose for the transaction is not described in Appendix A of this revenue
procedure, the taxpayer should follow section 4.04 of this revenue procedure to establish that the distribution satisfies the
corporate business purpose requirement. The failure of a transaction to meet the guidelines in this Appendix A does not, in
and of itself, mean that the distribution is not carried out for a Corporate Business Purpose. Moreover, the Service will
consider requests for rulings that do not satisfy the guidelines in this Appendix A and may rule favorably in appropriate
circumstances. Conversely, although a transaction may fall within the literal language of these guidelines, the Service will
not issue a favorable ruling unless it is satisfied that the transaction is motivated, in whole or substantial part, by a real and
substantial nonfederal tax purpose germane to the business of Distributing, Controlled, or the affiliated group to which
Distributing belongs, and that the purpose cannot be achieved through a nontaxable transaction that does not involve the
distribution of Controlled stock and which is neither impractical nor unduly expensive. The Service will continue to evaluate
the guidelines in this Appendix A and may modify them when appropriate.
The Service recognizes that a particular transaction may be motivated, in whole or substantial part, by more than one
business purpose described in this Appendix A. Generally, in such cases, satisfying the guidelines for one Corporate
Business Purpose that motivates the transaction, in substantial part, will suffice.
A reference to Distributing or Controlled includes, as the context requires, a reference to Other Corporations (as defined in
section 4.03(5) of this revenue procedure), or to a corporation that will be formed as part of the transaction.
SECTION 2. SPECIFIC CORPORATE BUSINESS PURPOSES
.01 Key Employee.
(1)General. To establish that a Corporate Business Purpose for the distribution is to provide an equity interest in a
business of Distributing or Controlled to a current or prospective employee, or employees, ordinarily, the taxpayer must
demonstrate to the satisfaction of the Service that:
(a)The transfer of Distributing or Controlled stock to this employee, or these employees, will accomplish a real and
substantial purpose germane to the business of Distributing, Controlled or the affiliated group (as defined in §1.355–
3(b)(4)(iv)) to which Distributing belongs. Among other things, the taxpayer must explain why the individual, or each
individual, is considered a key employee, and why it is necessary to give the individual, or each individual, an equity
interest of the type and amount proposed in the transaction.
(b)Generally within one year of the distribution, the employee, or the employees as a group, will receive a
significant amount, in terms of percentage and value, of voting stock of either Distributing or Controlled. (An acquisition
of a significant percentage of stock may not be required, however, if it would be prohibitively expensive for the employee,

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or employees, to acquire a significant percentage of stock.) The taxpayer must state when the employee, or employees, will
acquire the stock and fully describe the terms and method of acquisition (for example, purchase, compensation, or exercise
of an option).
(c)The objective to be accomplished by transferring stock to the employee, or employees, cannot be accomplished
by an alternative nontaxable transaction that does not involve the distribution of Controlled stock and which is neither
impractical nor unduly expensive. (For example, the Service generally will consider that it is unduly expensive to create a
controlled corporation that would terminate an existing S corporation election. In such cases, however, the taxpayer must
demonstrate why another nontaxable transaction, such as the transfer of assets to a partnership or limited liability
company, is neither impractical nor unduly expensive.) Where the taxpayer contends that a transaction involving a
distribution will provide the employee, or employees, voting power representing a meaningful voice in the governance of
their employer’s business that is not available through an alternative transaction, the Service will consider such cases on a
case-by-case basis, taking into account factors such as the distribution of voting power among the shareholders, family
relationships, and competing economic interests.
(2)Options and restricted stock. The Service will scrutinize closely situations in which stock issued to the employee,
or employees is subject to an option or restriction.
(3)Stock ownership plans. The principles of section 2.01(1) and (2) of this Appendix A also apply if a business
purpose is to transfer Distributing or Controlled stock to an employee stock ownership plan described in §4975(e)(7) (an
‘‘ESOP’’), treating the ESOP as a group of key employees. Other plans relating to employee stock ownership will be
considered on a case-by-case basis.
.02 Stock offering. To establish that a Corporate Business Purpose for the distribution is to facilitate a stock offering,
ordinarily, the taxpayer must demonstrate to the satisfaction of the Service that:
(1)The issuing corporation needs to raise a substantial amount of capital in the near future to fund operations, capital
expenditures, acquisitions, the retirement of indebtedness, or other business needs.
(2)The stock offering will raise significantly more funds per share (net of transaction costs of the distribution), or is
otherwise more advantageous, if Distributing and Controlled are separated in connection with the offering. The taxpayer
ordinarily must submit substantiation in the form of an analysis based on the professional judgment of persons qualified to
speak to such matters. The analysis should be supported by data involving comparable corporations, businesses, and stock
offerings and should compare the expected results of an offering, taking into account the proposed distribution, with the
expected results of an offering by Distributing or Controlled without the distribution. Generally, the Service will
acknowledge (without extensive substantiation) that an offering of publicly traded stock by a widely held corporation with
no significant shareholders will raise more funds per share than an offering by the same corporation in the position of a
controlled subsidiary.
(3)The funds raised in the stock offering will, under all circumstances, be used for the business needs of Distributing,
Controlled, or the affiliated group (as defined in §1.355–3(b)(4)(iv)) to which Distributing belongs. The taxpayer should
explain when and how the funds will be used in satisfying such business needs.
(4)The stock offering will be completed within one year of the distribution.
(5)If the stock of a corporation with one or more significant shareholders will be purchased by a limited number of
investors who require the distribution as a condition of their participation, the Service may require appropriate
substantiation from these investors.
.03Borrowing. To establish that a Corporate Business Purpose for the distribution is to facilitate borrowing, ordinarily,
the taxpayer must demonstrate to the satisfaction of the Service that:
(1)Distributing or Controlled needs to raise a substantial amount of capital in the near future to fund operations, capital
expenditures, acquisitions, or other business needs.
(2)The separation will enable Distributing or Controlled to borrow significantly more money or borrow on significantly
better nonfinancial terms. The taxpayer ordinarily must submit substantiation, such as an analysis based on the
professional judgment of persons qualified to speak to such matters.
(3)The funds raised in the borrowing will, under all circumstances, be used for the business needs of Distributing,
Controlled, or the affiliated group (as defined in §1.355–3(b)(4)(iv)) to which Distributing belongs. The taxpayer should
explain when and how the funds will be used in satisfying such business needs.
(4)The borrowing will be completed within one year after the distribution.
If the distribution will enable Distributing or Controlled to borrow money at a lower cost, see section 2.04 of this
Appendix A, relating to cost savings.
.04Cost savings. To establish that a Corporate Business Purpose for the distribution is cost savings, ordinarily, the
taxpayer must demonstrate to the satisfaction of the Service that the distribution will produce significant cost savings.
Ordinarily, the taxpayer’s submission should include analysis based on the professional judgment of persons qualified to
speak to this matter (such as the taxpayer’s insurer for insurance savings, an investment banker for lower borrowing costs,
or, in appropriate cases, the taxpayer’s employees). The analysis must explain the savings and why the savings cannot be
achieved through a nontaxable transaction that does not involve the distribution of stock of Controlled and which is neither
impractical nor unduly expensive.
Significant cost savings generally are projection period cost savings equal to at least one percent of the base period net
income of Distributing’s affiliated group. Projection period cost savings are the total anticipated future cost savings to

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Distributing, Controlled, and their affiliated group for the 3-year period following the distribution, reduced by the transaction
costs of the distribution and any anticipated additional direct or indirect costs to Distributing, Controlled and their affiliated
group, all of which are computed on an after-tax basis. For this purpose, all savings (whether or not from the same source)
and all additional costs to Distributing, Controlled, and their affiliated group are aggregated. Base period net income is the
total net consolidated financial income of Distributing’s affiliated group for the 3-year period preceding the distribution, all
of which is computed on an after-tax basis, using generally accepted accounting principles. The taxpayer may choose to use
the 5-year periods preceding and following the distribution for the base period and projection period instead of 3-year
periods. Members of an affiliated group are determined in accordance with §1.355-3(b)(4)(iv). In the case of foreign tax
savings, explain the extent to which the foreign tax that is expected to be saved would have resulted in foreign tax credits or
foreign tax credit carryovers for federal tax purposes.
The Service may apply different guidelines in various situations, including the following:
(1)Projection period cost savings will not equal one percent of base period net income.
(2)Net income for one or more of the 3 (or 5) years preceding the distribution is nominal or is affected by
extraordinary or nonrecurring items of gain, loss, income or deduction, or there is a loss for any year.
(3)Controlled stock will be distributed to a member of Distributing’s affiliated group.
(4)There are cost savings from the reduction of both federal and nonfederal taxes. In certain situations, a purpose of
reducing nonfederal taxes is not a Corporate Business Purpose. See §1.355–2(b)(2).
.05 Fit and Focus.
(1)General. This section 2.05 of Appendix A provides guidelines for a ruling request in which a Corporate Business
Purpose for the distribution is that the separation will enhance the success of the businesses by enabling the corporations to
resolve management, systemic, or other problems that arise (or are exacerbated) by the taxpayer’s operation of different
businesses within a single corporation or affiliated group. Except as provided in section 2.05(2) of this Appendix A, the
Service ordinarily will rule with respect to pro rata as well as non pro rata distributions.
(2)Significant shareholder or nonpublicly traded. If Distributing is not publicly traded (or is publicly traded, but has a
significant shareholder), the Service ordinarily will not rule unless the distribution:
(a)is a non pro rata distribution to enable a significant shareholder or shareholder group to concentrate on a
particular business (see example (2) of §1.355–2(b)(5)), or
(b)effects an internal restructuring within an affiliated group (members of an affiliated group are determined in
accordance with §1.355–3(b)(4)(iv)).
(3)Significant shareholder defined. A significant shareholder is any person who is directly or indirectly, or together
with related persons, the owner of 5 percent or more of any class of stock of Distributing or Controlled and who actively
participates in the management or operation of Distributing or Controlled. If the taxpayer contends that a person meeting or
exceeding this 5 percent threshold does not actively participate in management or operations, the taxpayer should submit
details supporting the taxpayer’s contention.
(4)Substantiation. Documentary substantiation satisfactory to the Service is essential. The documentation should
describe in detail the problems associated with the current corporate structure and demonstrate why the distribution will
lessen or eliminate these problems. Internal reports and studies, and analyses based upon the professional judgment of
persons qualified to speak to such matters (such as investment bankers or management consultants), are examples of
documentation that may provide adequate substantiation. Reports by securities analysts or similar materials may also be
helpful. However, in the case of a non pro rata distribution made to enable a significant shareholder or shareholder group to
concentrate on a particular business, the Service ordinarily will not require third party documentation or detailed studies.
(5)Special scrutiny. In evaluating the ruling request, the Service will scrutinize closely the following situations:
(a)Continuing relationship. Any continuing relationship between Distributing and Controlled to determine if such
relationship is consistent with the stated business purpose. Examples of continuing relationships include common
directors, officers, or key employees, the provision of goods or services to the other company, or commonly-owned
property.
(b)Cross ownership. Except for cases involving an internal restructuring of an affiliated group, any direct or indirect
continuing interest in both Distributing and Controlled by a significant shareholder or, in the case of a nonpublicly
traded corporation, any other shareholder. For example, if the purpose of the distribution is to allow a significant
shareholder to concentrate on a particular business, the Service ordinarily will require, as a condition of ruling, that the
separating shareholders not maintain interests (including interests as employees or directors) in both Distributing and
Controlled after the distribution. Exceptions will be made on a case-by-case basis, taking into account the extent and
nature of the interest in each corporation.
(c)Certain internal restructurings. Any internal restructuring in which the distributee is not entitled to eliminate,
exclude, or receive a 100 percent dividends-received deduction with respect to, a distribution from Distributing, such as
a transaction involving a foreign corporation.
.06Competition.
(1)General. To establish that a Corporate Business Purpose for the distribution is to resolve the taxpayer’s problems
with customers or suppliers who object to Distributing or Controlled being associated with a business that competes with the
customer or supplier, ordinarily, the taxpayer must demonstrate to the satisfaction of the Service that:

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(a)One or more customers or suppliers have significantly reduced (or will significantly reduce) their purchases from,
or sales to (or, for potential customers or suppliers, have not made any purchases from, or sales to), Distributing or
Controlled because of the competing business.
(b)Because of the distribution, these customers or suppliers will significantly increase (or not implement a planned
significant reduction in) their purchases from, or sales to, Distributing or Controlled after the distribution.
(c)These customers or suppliers do not object to the Distributing shareholders’ ownership of stock of Controlled
after the distribution.
(d)Sales to these customers, or purchases from these suppliers, will represent a meaningful amount of sales or
purchases by Distributing or Controlled after the distribution.
(2)Substantiation. The taxpayer must submit substantiating evidence. In most cases, corroboration from customers or
suppliers will be required.
.07Facilitating an acquisition of Distributing. To establish that a Corporate Business Purpose for the distribution is to
tailor Distributing’s assets to facilitate a subsequent tax-free acquisition of Distributing by another corporation (the
‘‘acquiring corporation’’), ordinarily, the taxpayer must demonstrate to the satisfaction of the Service that:
(1)The acquisition will not be completed unless Distributing and Controlled are separated.
(2)The acquisition cannot be accomplished by an alternative nontaxable transaction that does not involve the
distribution of Controlled stock and is neither impractical nor unduly expensive.
(3)The acquiring corporation is not related to Distributing or Controlled. If the taxpayer contends that the Service
should rule favorably, notwithstanding the fact that the acquiring corporation is related to Distributing or Controlled,
explain the relationship and why the Service should disregard the relationship.
(4)The acquisition will be completed, and, except in unusual circumstances, will be completed within one year of the
distribution.
.08Facilitating an acquisition by Distributing or Controlled. To establish that a Corporate Business Purpose for the
distribution is to tailor Distributing’s assets or Controlled’s corporate structure to facilitate a subsequent tax-free acquisition
of another corporation (the ‘‘target corporation’’) by Distributing or Controlled, ordinarily, the taxpayer must demonstrate to
the satisfaction of the Service that:
(1)The combination of the target corporation with Distributing or Controlled will not be undertaken unless Distributing
and Controlled are separated.
(2)The acquisition cannot be accomplished by an alternative nontaxable transaction that does not involve the
distribution of Controlled stock and is neither impractical nor unduly expensive.
(3)The target corporation is not related to Distributing or Controlled. If the taxpayer contends that the Service should
rule favorably, notwithstanding the fact that the target corporation is related to Distributing or Controlled, explain the
relationship and why the Service should disregard the relationship.
(4)The acquisition will be completed, and, except in unusual circumstances, will be completed within one year of the
distribution.
.09Risk Reduction. If a Corporate Business Purpose for the distribution is to significantly enhance the protection of one
or more businesses (the ‘‘other businesses’’) from the risks of another business (the ‘‘risky business’’), the factors the
Service will consider, and the taxpayer should address, include:
(1)The nature and magnitude of the risks faced by the risky business. The taxpayer must submit information regarding
the claims history of the risky business, or of the typical risk experience of similar businesses in that industry.
(2)Whether the assets and insurance associated with the risky business are sufficient to meet reasonably expected
claims arising from the conduct of the risky business. The taxpayer must submit the book value and approximate fair
market value of the net assets, including intangibles, of the risky business. Describe any other factors, such as liabilities
that are not included on the taxpayer’s balance sheet, that affect the value of the net assets of the risky business. The
taxpayer must submit information as to the taxpayer’s current insurance coverage and discuss the availability and cost of
additional insurance. Facts regarding the cost and availability of insurance generally will require third party substantiation.
If affordable insurance is available, but a separation of the businesses would reduce the cost, see section 2.04 of this
Appendix A, relating to cost savings.
(3)Whether, under applicable law, the distribution will significantly enhance the protection of the other businesses
from the risks of the risky business and, whether, under applicable law, an alternative nontaxable transaction that does not
involve the distribution of Controlled stock and which is neither impractical nor unduly expensive (for example, creating a
parent/subsidiary or holding company structure) would provide similar protection. See example (3) of §1.355–2(b)(5). The
taxpayer’s submission should include an analysis of the law and the application of the law to the relevant facts of the
proposed transaction. An opinion of counsel may be required. It is not necessary for the taxpayer to establish conclusively
that, under applicable law, the proposed transaction will afford adequate protection or that an alternative transaction would
not afford adequate protection. However, the taxpayer must convince the Service that, based on objective analysis of the
law and its application to the facts, risk reduction is a real and substantial purpose for the transaction.

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APPENDIX B
SECTION 1. RULING REQUESTS INVOLVING RETENTION OF STOCK OR OPTIONS BY DISTRIBUTING
.01The Service will issue favorable rulings regarding the application of §355(a)(1)(D)(ii), relating to the retention by
Distributing of stock or options in Controlled, to transactions in which Controlled stock will be widely held if Distributing
establishes that the following requirements are satisfied:
(1)A sufficient business purpose exists for the retention of the stock, options, and any stock acquired on the exercise
of the options.
(2)None of Distributing’s directors or officers will serve as directors or officers of Controlled as long as Distributing
retains the stock, options, or any stock acquired on the exercise of the options. Under appropriate facts and circumstances,
the Service may issue a favorable ruling in cases in which the directors or officers of Distributing will serve as directors
or officers of Controlled. For example, the Service may issue a favorable ruling if a director or officer of Distributing
serves as a director or officer of Controlled solely to accommodate Controlled’s business needs.
(3)The retained stock, options, and any stock acquired upon exercise of the options will be disposed of as soon as a
disposition is warranted consistent with the business purpose specified in section 1.01(1) of this Appendix B, but in any
event, not later than 5 years after the distribution.
(4)Distributing will vote the retained stock and any stock acquired on exercise of the options in proportion to the votes
cast by Controlled’s other shareholders. For example, if after the distribution the other shareholders of Controlled vote 70
percent in favor of a matter and 30 percent against, Distributing would be required to vote the stock 70 percent in favor
and 30 percent against the matter.
.02In other cases, the Service may issue favorable rulings, based upon all relevant facts and circumstances, regarding the
application of §355(a)(1)(D)(ii). For example, the Service will rule favorably if the transaction is covered by Rev. Rul. 75–
321, 1975–2 C.B. 123.
APPENDIX C
SECTION 1. REPRESENTATIONS REGARDING S CORPORATION STATUS
.01This Appendix C contains representations regarding S corporation status that the taxpayer may submit to lessen the
Service’s concerns about the potential avoidance of federal taxes. These representations may be submitted if either
Distributing or Controlled will be eligible to elect S corporation status after the distribution. If either Distributing or
Controlled will be eligible to elect S corporation status after the distribution, but the taxpayer does not submit any of the
representations in this Appendix C, please explain. The taxpayer’s failure to submit any of the representations will not
prevent the Service from issuing a favorable ruling if it is satisfied that the distribution is motivated in whole or substantial
part by one or more Corporate Business Purposes. On the other hand, there may be cases where the submission of one of the
representations will not conclusively establish that the transaction does not have the potential for the avoidance of federal
taxes.
(1) No S elections. REPRESENTATION: The distributing corporation is not an S corporation (within the meaning of
§ 1361(a)), and there is no plan or intention by the distributing or controlled corporation to make an S corporation election
pursuant to §1362(a).
(2)Distributing and Controlled will elect S corporation status. REPRESENTATION: The distributing corporation is not
an S corporation (within the meaning of §1361(a)), but immediately before the distribution, the distributing corporation will
be eligible to make an S corporation election pursuant to §1362(a). The distributing and controlled corporations will elect
to be an S corporation pursuant to §1362(a) on the first available date after the distribution, and there is no plan or intent
to revoke or otherwise terminate the S corporation election of either the distributing or controlled corporation.
(3)Distributing is an S corporation. REPRESENTATION: The distributing corporation is an S corporation (within the
meaning of §1361(a)). The controlled corporation will elect to be an S corporation pursuant to §1362(a) on the first
available date after the distribution and there is no plan or intent to revoke or otherwise terminate the S corporation
election of either the distributing or controlled corporation.

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261996–28 I.R.B.
Part IV. Items of General Interest
Notice of Proposed Rulemaking and
Withdrawal of Notice of Porposed
Rulemaking
General Revision of Regulations
Relating to Withholding of Tax on
Certain U.S. Source Income Paid to
Foreign Persons and Related
Collection, Refunds, and Credits;
Revision of Information Reporting and
Backup Withholding Regulations; and
Removal of Regulations Under Part
35a and of Certain Regulations
Under Income Tax Treaties
INTL–062–90; INTL–0032–93;
INTL–52–86; INTL–52–94
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and withdrawal of notice of pro-
posed rulemaking.
SUMMARY: This document contains
proposed regulations relating to the
withholding of income tax under sec-
tions 1441 and 1442 on certain U.S.
source income paid to foreign persons,
the related tax deposit and reporting
requirements under section 1461, and
the related collection, refunds, and
credits of withheld tax under sections
1461 through 1463 and section 6402.
Additionally, this document contains
proposed regulations relating to the
statutory exemption under sections
871(h) and 881(c) for portfolio interest.
This document proposes to remove
certain temporary employment tax reg-
ulations under the Interest and Divi-
dend Compliance Act of 1983 and to
amend existing regulations under sec-
tions 6041A and 6050N. This docu-
ment also proposes changes to pro-
posed regulations contained in project
number INTL–52–86 [1988–1 C.B.
892], published on February 29, 1988
(53 FR 5991) under sections 6041,
6042, 6045, and 6049. This document
proposes related changes to the regula-
tions under sections 163(f), 165(j),
3401, 3406, 6114, and 6413 and
proposes further changes to the pro-
posed regulations under section 6109
contained in project number IL–0024–
94 [1995–27 I.R.B. 33] published on
June 8, 1995 (60 FR 30211). This
document proposes to remove certain
regulations under income tax treaties.
The IRS and Treasury have reviewed
current withholding and reporting pro-
cedures applicable to cross-border
flows of income and have concluded
that changes are necessary in view of
the substantial growth in such flows
over the past 15 years. This document
also removes proposed regulations pub-
lished on July 12, 1976 (41 FR 28517)
and September 10, 1984 (49 FR
355110), respectively.
DATES: Written comments and re-
quests for a public hearing must be
received by July 22, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R ([INTL–0032–93]),
Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alterna-
tive, submissions may be hand deliv-
ered between the hours of 8 a.m. and 5
p.m. to: CC:DOM:CORP:R ([INTL–
0032–93]), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Avenue NW., Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Philip Garlett, telephone
(202) 622-3880 (not a toll-free num-
ber), for questions on proposed regula-
tions under sections 1441, 1442, 1461,
1462, 1463, 3401, 6402, and 6413;
Gwendolyn A. Stanley, telephone (202)
622-3860 (not a toll-free number) for
questions on payments to partnerships;
Carl Cooper, telephone (202) 622-3840
(not a toll-free number) for questions
on proposed regulations under sections
163(f), 165(j), 871(h) and 881(c) and
on withholding agreements; Teresa
Burridge Hughes, telephone (202)
622-3880 (not a toll-free number), for
questions on proposed regulations un-
der sections 6041 through 6049,
6050N; Teresa Burridge Hughes, tele-
phone (202) 622-3880 and Renay
France, telephone (202) 622-4910, for
questions on proposed regulations un-
der section 3406; Elissa Shendalman
(202) 622-3870 on proposed regula-
tions under section 6045 and 6049
relating to the reporting of payments
made in a currency other than the U.S.
dollar or transactions subject to section
988; Lilo Hester, telephone (202)
874-1490 (not a toll-free number), for
questions on proposed regulations un-
der section 6109; David F. Bergkuist,
telephone (202) 622-3860 (not a toll-
free number), for questions on pro-
posed regulations under section 6114.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed
rulemaking have been submitted to the
Office of Management and Budget for
review in accordance with the Paper-
work Reduction Act of 1995 (44
U.S.C. 3507).
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer, T:FP, Washington,
DC 20224. Comments on the collec-
tions of information should be received
by June 21, 1996.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
The collections of information relat-
ing to foreign persons that receive
payments subject to withholding under
sections 1441 or 1442 of the Internal
Revenue Code are in §§1.1441–1(e),
1.1441–4(a)(2), 1.1441–4(b) (1) and
(2), 1.1441–4(c), (d) and (e), 1.1441–
5(a)(2)(ii), 1.1441–5(b), 1.1441–6(b)
and (c), 1.1441–8(b), 1.1441–9(b),
1.1461–1(b) and (c), 301.6114–1, and
301.6402–3(e), 31.3401(a)(6)–1(e).
This information is required by the IRS
to identify and verify the status of
persons to whom payments of U.S.
source income is made. This informa-
tion will be used to claim foreign
person status and, in appropriate cases,
to claim residence in a country with
which the United States has an income
tax treaty in effect, so that withholding
at a reduced rate of tax may be ob-
tained at source. The likely respondents
and recordkeepers are individuals, state
or local governments, farms, business
or other for-profit institutions, federal
agencies, nonprofit institutions, and
small business or organizations. Re-
sponses to this collection of informa-
tion are mandatory.

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Books or records relating to a col-
lection of information must be retained
as long as their contents may become
material in the administration of any
internal revenue law. Generally, tax
returns and tax return information are
confidential, as required by 26 U.S.C.
6103.
The burden for the reporting require-
ment contained in §§1.1441–1(e)(2),
1 . 1 4 4 1 – 4 ( a ) ( 2 ) , 1 . 1 4 4 1 – 4 ( b ) ( 2 ) ,
1.1441–4(c)(2), 1.1441–4(d), 1.1441–
4(e)(1), (2) and (3), 1.1441–6(b),
1.1441–8(b), 1.1441–9(a)(2), 301.6114–
1(b)(4), and 301.6402–3(e) will be
reflected in the burden of Form W–8,
Form 8833, Form 8233, and the income
tax return of a foreign person filed for
purposes of claiming a refund of tax.
The collection of information re-
quirement for corporations contained in
§1.6049–4(c) will be reflected in the
burden of Form W–8.
The requirement for the recordkeep-
ing requirement in §1.6049–5(c)(1)(ii)
and (iii) is in an existing regulation,
appearing in TD 7966 that was ap-
proved under OMB number 1545–
0112.
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (CFR parts 1, 31, 35a and 301)
under sections 163(f), 165(j), 871, 881,
1441, 1442, 1461, 1462, 1463, 3401,
3406, 6041, 6041A, 6042, 6045, 6049,
6050N, 6109, 6114, 6402, and 6413 of
the Internal Revenue Code (Code). This
document also proposes to remove
certain regulations under income tax
treaties.
Explanation of Provisions
A.Current rules
These proposed regulations deal with
the withholding of tax under section
1441, 1442, or 1443 on amounts paid
to foreign persons, procedures for
claiming foreign status to avoid backup
withholding under section 3406 on cer-
tain payments, and the reporting to the
IRS of payments to foreign persons.
Reporting to the IRS may be required
under sections 6011 and 1461 or under
the reporting provisions of chapter 61
of the Code, such as sections 6041,
6041A, 6042, 6044, 6045, 6049,
6050H, and 6050N, (the 1099 reporting
provisions).
1.U.S. income tax on U.S. source
income of foreign persons.
Under sections 871(a) and 881(a) of
the Code, non-resident alien individuals
and foreign corporations are subject to
a 30 percent tax on most items of
income they receive from sources
within the United States that are not
effectively connected with the conduct
of a trade or business in the United
States. Income taxable under these
provisions includes interest, dividends,
royalties, compensation, and other fixed
or determinable annual or periodical
income. The tax liability imposed under
section 871(a) and 881(a) is generally
collected by way of withholding at
source under section 1441(a) (for pay-
ments to non-resident alien individuals
and foreign partnerships) or under
section 1442(a) (for payments to for-
eign corporations). Special withholding
provisions apply under section 1443 to
payments of certain income to foreign
tax-exempt entities.
The 30 percent rate is often reduced
under the Code or an income tax treaty.
Under current regulations, a withhold-
ing agent may generally rely on a
statement furnished by, or on behalf of,
the beneficial owner certifying entitle-
ment to a reduced rate. For example,
the portfolio interest exception under
section 871(h) and 881(c) is condi-
tioned upon the beneficial owner of the
interest providing a statement of for-
eign status to the U.S. withholding
agent, which can be provided on a
Form W–8. See §35a.9999–5(b), A–9.
If a reduction is claimed under an
income tax treaty, the withholding
agent may generally rely on a Form
1001 provided by, or on behalf of, the
beneficial owner claiming residence in
a treaty country. For dividends, how-
ever, no certification is required and
the withholding agent may generally
rely on the address of the payee in the
treaty country. The procedural require-
ments for claiming a reduced rate of
withholding may vary depending upon
the type of income, the taxpayer, or
whether a treaty is involved.
A withholding agent is generally
required to file an annual income tax
return on Form 1042 to report amounts
upon which a tax was actually withheld
under chapter 3 of the Code or would
have been required to be withheld but
for an exemption under the Code, the
regulations, or an income tax treaty. An
information return on a Form 1042–S
must be attached to the Form 1042 and
report each recipient’s name and ad-
dress, amounts paid, and taxes with-
held, if any. Section 1.1461–2(b) and
(c).
2.Backup withholding
Under chapter 61 of the Code and
section 3406, a reportable payment, as
defined in section 3406(b), is subject to
backup withholding at the rate of 31
percent unless the payor receives a
taxpayer identifying number (TIN),
generally on a Form W–9, and, for
reportable interest and dividends, a
certification that the payee is not
subject to notified payee underreport-
ing. The payor of a reportable payment
is also generally required to file Form
1099 with the IRS showing the name,
address, and TIN of the payee; the
amount of the payment; and the amount
that was withheld, if any. The payor
must also provide a copy of Form 1099
to the payee, who must report the
payment on an income tax return to the
extent the payment constitutes gross
income. A payor that fails to obtain a
TIN or other required information or to
backup withhold when required under
section 3406 may also be liable under
section 3403 for the amount that should
have been withheld. Information report-
ing by payors is critical to a matching
system that allows the IRS to match
information provided by payors with
income reported on a payee’s return.
The information reporting provisions
of chapter 61 provide guidance to help
payors determine when payments are
made to a foreign person and, there-
fore, exempt from 1099 reporting and
backup withholding. Generally, depend-
ing upon the type of payment involved,
a payor may rely on a certification of
foreign status made on Form W–8,
Form 1001, Form 4224, or on docu-
mentary evidence. Therefore, even
though an amount is exempt from
withholding under chapter 3 of the
Code if earned by a foreign person
(e.g., gain from the sale of securities),
a payor must nevertheless comply with
specified certification procedures in
order to avoid being subject to backup
withholding. Only amounts subject to
reporting under the 1099 reporting
provisions can be subject to backup
withholding under section 3406. There-
fore, payments to foreign persons that
are exempt from reporting are also
exempt from backup withholding.

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B.Need for reform
The IRS and Treasury have reviewed
the current withholding and reporting
procedures applicable to cross-border
flows of income and have concluded
that changes are necessary in view of
the substantial growth in such flows
over the past 15 years. The IRS and
Treasury have concluded that allowing
the benefit of the reduced rate at source
continues to be desirable. A system that
reduces withholding at source permits
an investor to receive its full income
without the administrative costs and
delays that can occur when applying
for a refund of withheld taxes. This
advantage, however, is necessarily ac-
companied by the need to rely, in part,
on withholding agents. Withholding
agents perform an important com-
pliance function as recipients of the
necessary documentation substantiating
claims of foreign status and of reduced
rates of withholding and as providers
of information to the IRS.
One of the important objectives of the
proposed revisions is to eliminate un-
necessary burdens that the lack of
standardization and coordination of cur-
rent procedures imposes on withholding
agents. For example, under current rules,
different forms must be used for dif-
ferent purposes; different standards of
proof apply for establishing foreign
status for purposes of the 1099 reporting
provisions (and the related backup with-
holding provisions) and of the Chapter 3
withholding provisions. Also, the revi-
sions seek to facilitate compliance by
clarifying many of the uncertainties
under current procedures (e.g., the scope
of due diligence standards imposed on
withholding agents). This proposal also
addresses the important issue of pay-
ments to intermediaries (nominees,
agents, etc.) and whether, in the case of
interest, dividends, and gross proceeds
from publicly traded or widely held
obligations or stocks, intermediaries
should certify status on behalf of
beneficial owners and, if so, how. Under
current rules, nominee procedures work
differently for different types of income.
For example, a U.S. broker redeeming a
short-term obligation held by a foreign
financial institution as an agent may
exempt the payment from 1099 report-
ing and backup withholding and grant
the exemption from the 30 percent tax
under section 871(a) without having to
obtain certificates or documentation. If
the foreign financial institution makes a
payment to another person offshore then
no certification or documentation is
required. On the other hand if, for
example, the foreign financial institu-
tion, remitted the amount to a person in
the United States through a U.S. office,
it might have to obtain a Form W–8 or
a Form W–9. In contrast, interest on
registered obligations may not qualify as
portfolio interest under sections 871(h)
and 881(c) unless the U.S. withholding
agent receives a statement that the
beneficial owner of the obligation is not
a U.S. person (see section 871(h)(2)-
(B)(ii)). Current regulations implement
this condition by requiring that a
beneficial owner certification be passed
up through a chain of intermediaries to
the U.S. withholding agent. These pro-
cedures have proved difficult to imple-
ment in a number of cases and these
proposed regulations offer alternative
procedures. The proposed revisions,
therefore, respond to the concerns ex-
pressed by various representatives of the
financial community regarding the cost
of complying with current procedures
and potential harm to the competitive-
ness of U.S. financial institutions in
handling investment transactions in the
United States and abroad.
These proposed regulations are also
responsive to the Congressional man-
date in section 342 of the Tax Equity
and Fiscal Responsibility Act of 1982
(TEFRA) that Treasury consider a
range of options for replacing the
address/self-certification method of ad-
ministering income tax treaty benefits.
Since 1982, the IRS and Treasury have
studied several options for improving
the withholding tax procedures, includ-
ing a system of certification of re-
sidence in a treaty country and refund
systems. At hearings held in February
of 1985 on proposed regulations issued
in 1984 under section 1441, comments
from the public and several U.S. treaty
partners made it apparent that certifica-
tion requirements, as proposed, would
create too many administrative prob-
lems for payments made through nomi-
nees. The proposed revisions take these
comments into account and propose to
rely on procedures essentially identical
to the procedures proposed for portfolio
interest on registered obligations.
The streamlining of current proce-
dures and the implementation of work-
able nominee certification procedures
represent a substantial simplification
and reduction of burden. The IRS and
Treasury expect that this, in turn,
should result in greater compliance and
improve the ability by withholding
agents and the IRS to detect abusive
claims under U.S. income tax treaties
or under the Code.
C.Summary of proposal
1.Changes affecting portfolio-type
investments
The proposed regulations under sec-
tion 1441 and related Code provisions
would substantially revise some aspects
of the current system for withholding
on, and reporting of, amounts paid to
foreign persons. Current certification
procedures (i.e., Forms W–8, 1001,
4224, etc.,) would be unified and
reliance standards would be clarified in
an effort to streamline the processing
of cross-border payments, particularly
by banks and other financial institu-
tions. Most forms (W–8, 1001, 4224,
8709) are proposed to be combined into
a single form (Form W–8). In addition,
taxpayer identifying numbers are not
required to be stated on withholding
certificates, with certain limited excep-
tions that do not affect market-based
transactions. These changes are impor-
tant steps toward reducing the burden
on withholding agents and assisting
taxpayer compliance.
The address rule for claiming tax
treaty benefits for dividends is pro-
posed to be eliminated. Instead, divi-
dends would be made subject to the
same beneficial owner and intermediary
certification procedures as are proposed
for portfolio interest on registered
obligations. It is also proposed to apply
the same procedures to bank deposit
interest (as described in section
871(i)(2)(A)). On the other hand, the
documentary evidence procedures cur-
rently in effect for bank deposit interest
on accounts held with foreign branches
would be continued and would be ap-
plied as well to offshore payments of
dividends on publicly traded stocks and
portfolio interest on registered obliga-
tions. Therefore, documentary evidence
would become the general rule for
dividends and interest earned on ac-
counts held with foreign branches.
These proposed changes illustrate the
effort by the IRS and Treasury to
eliminate unnecessary procedural dif-
ferences in order to reduce the burden
on withholding agents.
The proposal does not generally af-
fect other important classes of invest-
ment transactions. Thus, current port-

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folio interest rules for bearer obliga-
tions (including commercial paper),
convertible obligations, pass-through
certificates, as well as rules for broker
proceeds and short term obligations
would be retained. In order to further
simplify compliance, the regulations
under section 165(j) (§1.165–12) are
proposed to be revised to eliminate the
requirements that, in connection with
delivery of bearer obligations, holders
receive statements and send confirma-
tions. Provisions regarding foreign-
targeted registered obligations are to be
retained. However, because these spe-
cial procedures have been rarely used,
comments are solicited on their useful-
ness and whether they should be
retained.
Foreign intermediary procedures as
currently applicable to portfolio interest
(which are proposed to become appli-
cable to dividends and bank deposit
interest as well) are substantially re-
vised by providing several options,
allowing different taxpayers to comply
in different ways. These options recog-
nize that it is appropriate to adapt
withholding requirements to accommo-
date different types of transactions and
should provide substantial relief from
current requirements.
In order to allow sufficient time for
transition, the regulations are proposed
to be generally effective for payments
made after 1997. In addition, withhold-
ing agents would be allowed to con-
tinue to rely on existing certificates
after that date until their validity
expires as determined under current
rules. Comments are solicited on
whether these proposed effective dates
leave adequate time to implement
necessary system changes.
The regulations proposed in 1988
regarding the reporting by U.S. banks
of bank deposit interest paid to Cana-
dian residents are finalized, effective
for payments made on or after January
1, 1997 with respect to Forms W–8
furnished on or after that date. See the
Rules and Regulations section of this
issue of the Bulletin.
2.Intermediary procedures options for
portfolio interest, dividends on
publicly traded stock, and bank
deposit interest.
The proposed regulations offer inter-
mediary certification options designed
to simplify compliance by withholding
agents. These procedures would be
mostly relevant to portfolio interest on
registered obligations, dividends on
publicly traded stocks (eliminating the
address rule), and interest paid on bank
deposits (as described in section
871(i)(2)(A)). First, for portfolio inter-
est on registered obligations, the cur-
rent certification procedures would be
retained, as an option and are not
reproposed. See §35a.9999–5(b), A–9.
These rules will be included in final
regulations in proposed §1.871–14(c)-
(2)(iii) and, accordingly, that section of
the proposed regulations is reserved.
Preserving the existing regulations is
designed to accommodate those tax-
payers and withholding agents for
w h o m t h e c u r r e n t r u l e s w o r k
appropriately.
The regulations propose to add two
new procedures. First, a withholding
agent would be allowed to rely on an
intermediary Form W–8 furnished on
behalf of one or more beneficial
owners (or other intermediaries) with-
out having to obtain beneficial owner
documentation if the intermediary has
entered into a withholding agreement
with the IRS and, thus, is a ‘‘qualified
intermediary.’’ In a chain of intermedi-
aries, an intermediary would be al-
lowed to rely on the intermediary Form
W–8 of another qualified intermediary.
If the other intermediary is not
qualified, the qualified intermediary
would generally be required to obtain
beneficial owner documentation from
the other non-qualified intermediary.
The qualified intermediary would then
pass such documentation up the chain
or rely on such documentation when
issuing its intermediary Form W–8.
Under the withholding agreement pro-
cedure, a qualified intermediary would
agree with the IRS to obtain such
documentation or certifications as the
agreement would specify. It is contem-
plated that institutions that are subject to
bona fide ‘‘know-your-customer’’ proce-
dures under their domestic laws will
generally be permitted to rely on such
procedures. The withholding agreement
will generally include provisions for
beneficial owner information to be
reported or made available to the IRS
and for the IRS to audit such informa-
tion. In appropriate cases, the reporting
and audit may be limited to the
beneficial ownership information per-
taining to U.S. source income (other
than gross proceeds) of U.S. customers
or to an audit of the reports prepared
by, and the methodology employed by,
the approved external auditors of the
qualified intermediary.
The regulations propose a second
intermediary procedure permitting a for-
eign agent of a U.S. withholding agent
to act on behalf of the withholding
agent. While the U.S. withholding agent
would remain liable for the acts (or
failures to act) of its agent, the proposed
procedure streamlines the withholding
process as the foreign agent would
collect the appropriate documentation on
behalf of the U.S. withholding agent and
report beneficial owner information to
the IRS without having to furnish the
documentation to the U.S. withholding
agent. The documentation requirements
under this procedure would be the same
as those normally applicable to with-
holding agents.
Lastly, the proposed regulations
provide that the U.S. competent au-
thority may agree to special withhold-
ing procedures with a foreign compe-
tent authority under an income tax
treaty. The United States intends to
consult with its tax treaty partners
before implementing changes that
would affect its relationship with its
treaty partners.
3. Use of taxpayer identifying number.
A taxpayer identifying number (TIN)
is not required to be shown on with-
holding documents provided for income
on portfolio-type investments.
A TIN continues to be required for
claims of effectively connected income.
A TIN would also be required to sup-
port claims of benefits under an income
tax treaty (other than dividends on
publicly traded stocks). Therefore, for
example, payments of dividends on
non-publicly traded stocks, royalties, or
related party interest would require a
TIN to be shown on the withholding
certificate in order for a withholding
agent to rely on a claim of a reduced
rate under a tax treaty.
In the case of an individual, a TIN
would generally be an IRS individual
taxpayer identifying number (ITIN)
issued by the IRS to a nonresident
alien individual who is not otherwise
eligible for a Social Security Number.
In the case of a non-individual, a TIN
would be an Employer Identification
Number (EIN). Over time, the IRS will
issue EIN’s to foreign persons that
begin with the two digits ‘‘98’’ to
permit instant recognition of foreign
status. See regulations proposed under

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section 6109 contained in project num-
ber INTL–0024–94, published on June
8, 1995 (60 FR 302111), describing the
types of taxpayer identifying numbers
issued to nonresident alien individuals
and the manner in which a number can
be obtained. Further revisions to the
regulations under section 6109 are
proposed in order to require the state-
ment of a TIN in appropriate cases.
4.Other proposed changes
The regulations propose to clarify
the extent of due diligence expected
from certain withholding agents, such
as banks and other financial institu-
tions. Thus, for payments of portfolio-
type income, the withholding agent’s
due diligence would be limited to an
examination of the address stated on
the withholding certificate. If the ad-
dress on the certificate were a U.S.
address or did not match the address
information in its records, the with-
holding agent would have to seek
further proof of a claim of foreign
status. This change would not affect the
current requirement that a withholding
agent cannot ignore what it actually
knows when determining the extent to
which it may rely on a withholding
certificate. However, in the case of
financial institutions, knowledge would
be limited to information that can be
associated with the account under the
same procedures as apply for purposes
of the backup withholding provisions.
As a further burden reduction, the
regulations propose to eliminate the
requirement to attach withholding cer-
tificates to Forms 1042 and 1042–S.
The current reporting requirements are
otherwise unchanged except for clar-
ification of how these requirements
apply in the case of payments to
intermediaries. Therefore, even though
certification procedures are proposed to
be modified for bank deposit interest,
such interest continues to be exempt
from reporting (except for certain inter-
est on bank deposits paid to Canadian
residents).
The period of validity of a certificate
of foreign status (Form W–8) is limited
to three years as under current law.
However, a Form W–8 stating a bene-
ficial owner’s TIN is proposed to be
valid indefinitely if it relates to income
required to be reported to the IRS (or if
the TIN is actually reported even
though not otherwise required). The
validity period for certificates used to
claim a reduced rate for effectively
connected income is proposed to be
extended from one year to three years.
The regulations propose new proce-
dures dealing with payments to foreign
partnerships. These procedures gener-
ally would allow looking through to the
partners and reliance on a certification
provided for each partner. Alter-
natively, in order to facilitate certifica-
tion for partnerships with many part-
ners or for tiered partnerships, the
regulations would also allow a foreign
partnership to be a qualified intermedi-
ary under an agreement with the IRS.
In that case, the partnership would be
allowed to furnish an intermediary
certificate for the partnership. The
partnership would be required to with-
hold under section 1441 in the same
manner as a domestic partnership. In
addition, the regulations would clarify
the manner in which a foreign entity
and its interest holders can determine
entitlement to benefits under an income
tax treaty with a particular country
based upon the principles in effect
under the laws of that country.
The proposed regulations also ad-
dress the practical difficulties that exist
under current rules due to the lack of
clear guidelines on determining the
status of a payee as a U.S. or a foreign
person in the absence of documenta-
tion. While some guidelines exist in
limited cases (e.g., §35a.9999–5(b)
A–10), guidance is incomplete. The
proposed regulations offer a com-
prehensive and uniform set of presump-
tions to assist withholding agents with
these determinations.
5.Changes to reporting rules under
chapter 61 of the Internal Revenue
Code
On February 29, 1988, the IRS and
Treasury published in project number
INTL–52–86 (53 FR 5991) proposed
amendments to the 1099 information
reporting regulations (the 1988 pro-
posed regulations) modifying the re-
porting requirements and the proce-
dures for presenting a claim of foreign
status. The provisions in the 1988
proposed regulations concerning infor-
mation reporting of bank deposit inter-
est paid to persons resident in Canada
are finalized. See §1.6049–5(e)(2) of
the 1988 proposed regulations and the
Rules and Regulations section of this
issue of the Bulletin. The 1988 pro-
posed regulations are not otherwise
amended. In order to standardize proce-
dures, changes are proposed to the
procedures for certifying foreign status
that were proposed in 1988 so as to
conform them to those proposed under
section 1441. The IRS and Treasury are
considering finalizing the 1988 pro-
posed regulations at the same time that
the proposed regulations under section
1441 are finalized.
Proposed effective dates
Unless otherwise provided in the
regulations, the regulations are pro-
posed to be effective for payments
made after December 31, 1997. The
regulations contain a number of transi-
tion rules designed to phase out cur-
rently outstanding withholding certifi-
cates (e.g., Forms W–8 and 1001).
Section-by-section analysis
§1.163–5 Denial of interest deduction
on certain obligations issued after
December 31, 1982, unless issued in
registered form
Section 1.163–5(c) contains foreign
targeting procedures applicable to cer-
tain obligations issued in bearer form.
Section 1.163–5(c)(2)(i)(B)(5) would
be revised to modify the cross-
reference to the documentary evidence
rules since the Q&A regulations under
part 35a are proposed to be eliminated.
§1.165–12 Denial of deduction for
losses on registration-required obliga-
tions not in registered form
Section 165(j)(1) and §1.165–12(a)
deny a loss deduction to a holder of a
registration-required obligation that is
not in registered form unless the holder
meets certain exceptions. Under
§1.165–12(c)(1)(iii) and (iv), the loss
disallowance rule does not apply to a
holder that delivers a registration-
required obligation that is in bearer
form and that is offered or sold in the
United States if the holder delivers the
obligation to a financial institution, and
the financial institution provides a
statement that it is a financial institu-
tion within the meaning of §1.165–
12(c)(1)(v), it is purchasing the obliga-
tion for its own account, the account of
another financial institution, or an
exempt organization, that will comply
with section 165(j)(3)(A), (B), or (C).
The loss disallowance rule also does
not apply if a holder delivers a

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registration-required obligation in
bearer form that is offered or sold
outside the United States if it is
delivered to a financial institution and
the holder gives the financial institution
a confirmation stating that any U.S.
taxpayer that holds the obligation in
bearer form and that is not exempt
under section 165(j)(3)(A), (B), or (C)
will be denied a deduction for any loss
or capital gain treatment with respect to
the obligation. A holder may deliver a
registration-required obligation in
bearer form that is offered and sold
outside the United States to a person
other than a financial institution only if
the holder has documentary evidence,
as described in §35a.9999–4T, A–5 that
the person is not a U.S. person.
These proposed regulations would
revise §1.165–12(c)(1)(iv) to eliminate
the requirement that the holder receive
a statement from a financial institution
for bearer obligations offered or sold in
the United States. The proposed regula-
tions would also eliminate the require-
ment that the holder deliver a confir-
mation to a financial institution for
obligations offered or sold outside the
United States. These changes are pro-
posed to reduce the documentation
burden associated with secondary mar-
ket transactions. The documentary evi-
dence requirement for delivery outside
the United States to a foreign person
other than a financial institution is
retained. The proposed regulations
would clarify that the holder may
receive such evidence electronically.
§1.871–14 Rules for portfolio interest.
Under section 871(h) and 881(c),
interest that qualifies as portfolio inter-
est is generally exempt from tax and is
exempt from withholding at source
under section 1441(b)(9). Section
1.871–14 proposes procedures govern-
ing whether interest (including original
issue discount) qualifies as portfolio
interest described in section 871(h)(2).
Section 1.1441–2(d) provides the ex-
emption from withholding.
For interest on bearer obligations, the
existing provisions in §35a.9999–5(a),
A–1 (dealing with portfolio interest on
bearer obligations) and in §35a.9999–
5(c) (dealing with convertible obliga-
tions) will be incorporated in §1.871–
14(b) without substantive changes and
are not reproposed. These rules will be
restated in proposed §1.871–14(b)(1)
and (b)(2) that are currently shown as
reserved.
For interest on registered obligations,
section 871(h)(2)(B)(ii) provides that
such interest qualifies as portfolio
interest only if the U.S. withholding
agent receives a statement that the
beneficial owner is not a United States
person. Paragraph (c)(2)(i) provides
that the statement requirement would
be satisfied if the beneficial owner
furnishes the type of documents de-
scribed in proposed §1.1441–1(e)(1)(i)
for a withholding agent to rely on a
claim of foreign status. Thus, in the
case of a payment to a beneficial
owner, the beneficial owner must
provide a beneficial owner withholding
certificate described in proposed
§1.1441–1(e)(2) or, if the payment is
made on an account held at a foreign
branch, documentary evidence may be
substituted (see paragraph (c)(2)(ii)).
The ability to use documentary evi-
dence on foreign branch accounts is a
significant change from current law and
one that intends to reduce the burden
on transactions outside the United
States. Further, as under current regula-
tions, the withholding certificate would
not have to state a taxpayer identifying
number (although one may be pro-
vided, if desired). See §35a.9999–5(b),
A–9.
In the case of a payment to a foreign
person that acts as an intermediary
(e.g., an agent, representative, nominee,
etc.), the proposed procedures under
section 1441 would require either that
the intermediary furnish an intermedi-
ary withholding certificate or, if the
intermediary acts as the agent of the
withholding agent, that the intermedi-
ary be an authorized foreign agent.
Under proposed §1.1441–1(e)(3)(iv) or
proposed §1.871–14(c)(2)(iii), the cer-
tificate could be, as under current rules,
a certificate to which the beneficial
owner documentation is attached (see
§35a.9999–5(b), A–9). Alternatively,
under proposed §1.1441–1(e)(3)(ii), it
could be a certificate by which the
intermediary certifies for the beneficial
owner (or other intermediaries) without
being required to attach beneficial
owner documentation. The latter certifi-
cate could be issued only by a qualified
intermediary, i.e., a person that has an
agreement with the IRS. The qualified
intermediary certificate would be issued
based upon certifications or documenta-
tion obtained by the qualified inter-
mediary. The same standards would
apply to these documents as are pro-
posed to be applied to documents that a
U.S. withholding agent is required to
obtain when paying directly to a
beneficial owner. Therefore, a taxpayer
identifying number is not required to
be shown on a beneficial owner with-
holding certificate provided to the
qualified intermediary. Alternatively,
the qualified intermediary could rely on
documentary evidence for accounts
held at foreign branches. In addition,
different procedures may apply under
the terms of a qualified intermediary’s
agreement with the IRS.
Where a withholding agent acts
through an authorized foreign agent,
certificates received by the agent would
be deemed to be received by the with-
holding agent. In that case, no certifi-
cate would be required from the
a u t h o r i z e d a g e n t . S e e p r o p o s e d
§1.1441–7(c)(2) for the description of
an authorized foreign agent and pro-
posed §1.1461–1(b)(2)(iii) and (c)(4)-
(iii) for the filing of returns by the
withholding agent and its authorized
foreign agent. Paragraph (c)(2)(iv)
specifies that other procedures may
apply under a competent authority
agreement with a country with which
the United States has an income tax
treaty.
The regulations clarify the con-
sequences of a late-received Form W–8
or other documentation. Paragraph
(c)(3) provides that the withholding
certificate may be received by the
withholding agent at any time before
expiration of the beneficial owner’s
period of limitation for claiming a
refund of tax with respect to the
interest. The applicable period is de-
scribed in section 6511(a). Under this
rule, a foreign person would be al-
lowed, for example, to provide the
required certificate to a U.S. withhold-
ing agent (or its authorized foreign
agent) at any time prior to filing an
income tax return and still be able to
qualify the interest as portfolio interest.
However, a withholding agent that does
not hold a valid certificate (or other
valid documentation) when paying the
interest would be required to withhold.
Failure to do so would make the with-
holding agent liable for the tax if the
required certification or documentation
procedures are not complied with prior
to the expiration of the beneficial
owner’s period of limitation. If a
withholding agent fails to withhold
although it does not hold a valid
certificate, but the documentation pro-
cedures are ultimately complied with, a
withholding agent would be liable for

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interest pursuant to section 1463 even
though there is no underlying tax
liability. In addition, the withholding
agent may be subject to penalties for
failure to withhold tax. See proposed
§1.1441–1(f)(5).
Paragraphs (d) and (e) are reserved.
Paragraph (d) will reflect the rules in
§35a.9999–5(e), regarding pass-through
certificates. Paragraph (e) will reflect
the rules in 35a.9999–5(b) A–12
through A–15 regarding foreign-
targeted registered obligations. These
rules are not reproposed. Under
§1.871–14(g), the rules contained in
proposed regulation §1.871–14 are pro-
posed to be effective for payments of
interest after December 31, 1997. How-
ever, withholding agents may continue
to rely on valid Forms W–8 that they
hold on the date that is 60 days after
the regulations become final until the
forms expire under the rules as in
effect on April 22, 1996.
§1.1441–1 Requirement for the with-
holding of tax on payments to foreign
persons.
This section states the general rules
concerning withholding on payments to
foreign persons. Paragraph (a) provides
the general purpose and scope of the
section. Paragraph (b) states the general
rule that a withholding agent must
withhold 30 percent of the gross
amount of income subject to withhold-
ing if paid to a foreign person unless
the beneficial owner of the income is a
U.S. person or is a foreign person
entitled to a reduced rate of tax. A
withholding agent may grant a reduced
rate at source in the case of a payment
to a foreign person only if, before
payment, it can associate the appropri-
ate documentation with the payment.
Therefore, actual knowledge that the
beneficial owner is a foreign person
would not excuse the obligation to
obtain appropriate documentation. A
withholding agent failing to act in
accordance with these rules may ul-
timately be relieved from the liability
for the tax under section 1461, but
would, in any event, be liable for
interest, and possibly, penalties. See
paragraph (f)(5). For this purpose,
payment to a foreign person includes a
payment to a U.S. person if the
withholding agent has actual knowl-
edge or reason to know that the U.S.
person is acting as the agent of a
foreign person. These rules restate
current law. See §§1.1441–1 and
1 . 1 4 4 1 – 7 ( a ) ( 1 ) o f t h e e x i s t i n g
regulations.
Paragraph (c) defines terms, includ-
ing payee and beneficial owner. Para-
graph (c)(3) defines a payee as the
person to whom the payment is made.
This definition has significance for
purposes of coordinating the section
1441 withholding provisions with the
1099 reporting and backup withholding
rules under chapter 61 of the Code and
section 3406, respectively (the 1099
reporting and backup withholding pro-
visions determine consequences of pay-
ments based on payees; in contrast, the
section 1441 withholding provisions
determine consequences of payments
based on beneficial owner). In the case
of a payment to a foreign partnership,
paragraph (c)(3)(ii) provides that the
partners, and not the partnership, are
considered to be the payees. However,
a foreign partnership could be consid-
ered a payee if it certified to the
withholding agent that it is a qualified
intermediary (see paragraph (e)(5) re-
garding qualified intermediaries) or if it
certified that the income is effectively
connected with a U.S. trade or business
(in which case, the partnership must
itself withhold the tax required under
section 1446). The provisions specify
how these rules would apply on a look-
through basis to tiered partnership
structures.
Under paragraph (c)(6), a beneficial
owner is defined as the person who,
under U.S. tax principles, would be
required to include the amount paid in
gross income. Therefore, under these
principles, partners, and not part-
nerships, are the beneficial owners
(unless the partner is itself a part-
nership, in which case, one looks
through to the partners of the highest
tier foreign partnership). Therefore, the
identification of a beneficial owner is
influenced by the classification of the
entity to which the payment is made.
This proposed rule revises §1.1441–3(f)
of the existing regulations that, in
effect, treats a partnership as a benefi-
cial owner for purposes of the with-
holding provisions. This provision has
created difficulties for partners of a
foreign partnership who wish to claim
the benefit of a reduced rate at source
based on their status, but may not do
so because the entity does not qualify
for the reduced rate. The proposed
regulations would alleviate these diffi-
culties by permitting beneficial owner
information to be passed to the with-
holding agent or by permitting the
p a r t n e r s h i p t o b e a q u a l i f i e d
intermediary.
The IRS and Treasury are aware that
some large investment partnerships
hold significant amounts of U.S. port-
folio type investments. The IRS and
Treasury understand that generally
these entities are treated as corporations
under the provisions of section
7704(c)(3) and the regulations under
that section. Therefore, the proposed
revisions requiring beneficial owner
documentation for partners would not
adversely affect these entities. The IRS
and Treasury solicit comments on this
point.
Generally, the determination of the
classification of an entity, including an
entity organized in a foreign country, is
made under U.S. tax rules. Because
U.S. and foreign laws may differ on
classification principles, the U.S. tax
classification of an entity as a part-
nership or a corporation may differ
from the tax treatment of that entity
under the laws of a foreign country.
Therefore, in the case of income paid
to a foreign entity, the entity might be
considered the beneficial owner under
U.S. tax principles (because it is
classified as an association taxable as a
corporation under U.S. tax principles),
but, if foreign tax principles are ap-
plied, its interest holders, rather than
the entity, might be considered the
beneficial owners. This dual character-
ization may give rise to difficulties in
the application of income tax treaties.
In order to alleviate these difficulties,
paragraph (c)(6)(ii)(B) proposes that
foreign tax principles, rather than U.S.
tax principles, apply to identify the
beneficial owner of income for which a
claim of a reduced rate of withholding
is made based upon a tax treaty. Under
this proposed rule, when a benefit is
claimed under a tax treaty with a
particular country, the tax principles
that govern the determination of who
the beneficial owner is for purposes of
obtaining benefits under that treaty
would be the principles in effect under
the laws of that country. This clarifica-
tion is intended to address the signifi-
cant uncertainties resulting from the
current lack of guidance on these
issues. The IRS and Treasury intend to
consult with treaty partners in order to
promote uniformity in this area. Para-
graph (c)(6)(iii) provides that the bene-
ficial owner rules in the proposed
regulations would not apply to trusts.

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Until further guidance is provided, the
rules in the current regulations would
continue to apply trusts. See §1.1441–
3(f) and (g) of the existing regulations.
While different procedures would
apply depending upon whether a pay-
ment is made to a corporation or a
partnership, a withholding agent would
not be required to determine the clas-
sification of an entity when making a
payment to a foreign person. Rather, a
withholding agent would be allowed to
rely on the classification claimed by
the entity, unless it had actual knowl-
edge or reason to know otherwise.
Paragraph (d) deals with procedures
that would enable a withholding agent
to determine the circumstances in
which it could consider that the pay-
ment is made to a U.S. person and is,
therefore, exempt from section 1441
withholding. This paragraph replaces
§1.1441–5 of the existing regulations
and proposes to replace Form 1078
with Form W–9, consistent with the
manner in which a U.S. payee must
generally provide a taxpayer identifying
number under section 3406. In the case
of a payment to an exempt recipient or
a payment of scholarship, grant, pen-
sion, or annuities, for which no Form
W–9 is required under section 3406, a
person also would be permitted to use a
Form W–9 to establish its U.S. status.
The regulations specify the information
that must be stated on such a certifi-
cate, which parallels that required
under §31.3406(h)–3(e)(2) in order for
a payor to reasonably rely on a Form
W–9. If no, or insufficient, documenta-
tion is provided, the presumptions in
§1.1441–1(f) would apply to determine
whether the beneficial owner should be
treated as a foreign or U.S. person.
In the case of a payment to a foreign
person acting as an intermediary (e.g.,
agent, representative, or nominee) for a
U.S. person, paragraph (d)(3) provides
that the intermediary may transmit a
Form W–9 for the U.S. person to claim
U.S. status and avoid section 1441
withholding. If the U.S. person is not
an exempt recipient, the withholding
agent would then have to comply with
the 1099 reporting requirements under
chapter 61 of the Code, because, under
these rules, the U.S. person would be
treated as a payee. Similarly, as a result
of the payee rules set forth in para-
graph (c)(3)(ii) dealing with payments
to foreign partnerships, a withholding
agent may treat a payment to a foreign
partnership as a payment made to a
U.S. person to the extent of the U.S.
partner’s distributive share of that
payment. Similarly, the withholding
agent would have to comply with the
1099 reporting requirements.
Paragraph (e) describes the condi-
tions for a withholding agent to rely
upon a beneficial owner’s claim of
f o r e i g n s t a t u s . P a r a g r a p h ( e ) ( 1 )
provides that a withholding agent may
rely upon a claim of foreign status if,
prior to making the payment, the with-
holding agent (1) holds a beneficial
owner withholding certificate or an
intermediary withholding certificate, (2)
complies with on-line confirmation pro-
cedures when prescribed by the IRS,
and (3) has not received a notification
from the IRS that the withholding
certificate is incorrect or unreliable.
The withholding agent’s reliance on the
withholding certificate is subject to the
withholding agent’s actual knowledge
or reason to know otherwise. See
standards of knowledge in proposed
§1.1441–7(b).
Paragraph (e)(2) sets forth the re-
quirements for a beneficial owner
withholding certificate. Generally, a
withholding certificate would be a
Form W–8 or, in the case of certain
compensation for personal services, a
Form 8233 (or an acceptable substitute)
that is signed under penalties of perjury
by the beneficial owner and contains
certain required information. The cer-
tificate serves as a representation that
the beneficial owner is not a U.S.
person and that the conditions for
claiming a reduced rate of withholding
tax are satisfied. These conditions may
vary depending upon the nature of the
income or the type of exemption
claimed.
Required information on a beneficial
owner Form W–8 would include the
beneficial owner’s name, permanent
residence address, the type of income
to be received, and the basis for any
reduced rate claimed. Generally, the
Form W–8 would not be required to
state the beneficial owner’s taxpayer
identifying number (‘‘TIN’’), except in
limited cases (see paragraph (e)(4)(vii),
below). Paragraph (e)(3) sets forth the
requirements for an intermediary with-
holding certificate. Intermediary with-
holding certificates may be provided by
one of three types of persons: (1) a
qualified intermediary, (2) a foreign
partnership, or (3) an agent, nominee,
or other representative that is not a
qualified intermediary.
Information required from a qualified
intermediary on a Form W–8 would in-
clude similar information as that re-
quired for the beneficial owner Form
W–8 except that the information would
relate to the intermediary. In addition,
the Form W–8 would have to state a
TIN and certify that the issuer is a
qualified intermediary and has obtained
the appropriate certificates or documen-
tation with respect to the account
holders covered by the Form W–8. A
foreign partnership that is not a with-
holding agent (because it is not a
qualified intermediary or acting for the
account of others) would have to pro-
vide the same information about itself,
and attach the partners’ withholding
certificates. In addition, the partnership
would be required to state an EIN on
the withholding certificate. See pro-
posed §1.1441–5(b) for the certificates
required to be attached in the case of
tiered partnerships. See also, proposed
§1.1461–1(c)(4)(v) for Form 1042–S
filing requirements for the withholding
agent.
An agent, nominee, or representative
furnishing an intermediary certificate
would have to provide information
about itself, state an EIN for the
intermediary (or an SSN or ITIN in the
case of an individual) and certify that it
is not acting for its own account and is
using the Form W–8 to transmit bene-
ficial owner certification for the pay-
ment to which the Form W–8 relates.
These procedures are essentially similar
to those in effect for portfolio interest
o n r e g i s t e r e d o b l i g a t i o n s u n d e r
§1.9999–5(b), A9 and that are proposed
to be retained in proposed §1.871–
14(c)(2)(iii).
Paragraph (e)(4)(i) requires that, in
the case of joint owners, each owner
provide a withholding certificate. This
rule would parallel the requirements for
backup withholding purposes. See
§31.3406(h)–2(a).
Paragraph (e)(4)(ii)(A) provides the
general rule that a withholding certifi-
cate would be valid for a period of
three years or until the circumstances
of the beneficial owner changed, mak-
ing an item of information on the
certificate incorrect. However, under
paragraph (e)(4)(ii)(B), a withholding
certificate that includes a TIN would be
valid indefinitely if the income (or,
under special procedures, the TIN) with

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which the certificate is associated were
reported to the IRS. For example, a
bank may rely on a claim of foreign
status by an account holder if it holds a
Form W–8 for the account holder even
without a TIN. In that case, the
certificate would be valid for a period
of three years only. If, however, the
account holder were to state a TIN on
the form and the bank adopted proce-
dures by which it reports the TIN to
the IRS as provided in proposed
§1.1461–1(d), the certificate would be
valid indefinitely until a change in
circumstances of the account holder
made the information on the form
incorrect.
Second, certificates furnished to
claim a reduced rate of withholding on
income that is effectively connected
with the conduct of a trade of business
within the United States would also be
limited to three years in all circum-
stances. This is a change from existing
regulations under §1.1441–4(a)(2) that
require that a new certificate be filed
each year. This change would relieve
the burden associated with annual
renewal of these certificates and sim-
plify compliance by providing uniform
validity period rules. The 3-year period
of validity for this certificate would
extend from the date it is signed to the
last day of the third succeeding calen-
dar year. This change would insure a
full 3-year validity period in all cases
(and up to four years where the certi-
ficate is furnished at the beginning of
the calendar year).
Under paragraph (e)(4)(iii), with-
holding certificates must be retained for
as long as they are relevant for the
determination of the withholding
agent’s liability under proposed
§1.1461–1. This rule would replace the
4-year retention period under current
law and conform the rules under
section 1441 to the retention period
required for Forms W–9 under section
3406. This change is necessary because
the Form W–8, like Form W–9, is pro-
posed to be made valid indefinitely in
c e r t a i n c i r c u m s t a n c e s . P a r a g r a p h
(e)(4)(iv) anticipates the possibility
that, in the future, a withholding agent
may rely on electronically transmitted
information otherwise required to be
stated on a withholding certificate.
Paragraph (e)(4)(v) provides for on-
line confirmation procedures for TIN’s
required to be stated on withholding
certificates in order to verify their
correctness and the claim that it be-
longs to a foreign person. Such proce-
dures are being developed by the IRS
and, when the system becomes opera-
tional, the IRS may require certain
categories of withholding agents hand-
ling large volumes of payments to
foreign persons (such as certain teach-
ing institutions) to perform on-line
confirmation of such TIN’s. These
procedures would be similar to those
currently in use under section 3406 in
order to notify payors of an incorrect
TIN.
Paragraph (e)(4)(vi) defines an ac-
ceptable substitute form. As under
section 3406, these regulations would
permit the use of substitute forms pro-
vided the information furnished is the
same as is required under the regula-
tions and is certified to be correct
under penalties of perjury. See
§31.3406(h)–3(c)(1).
Paragraph (e)(4)(vii) provides all of
the circumstances in which a taxpayer
is required to furnish a TIN on a
withholding certificate for purposes of
the regulations under sections 1441,
1442, and 1443. Taxpayers would be
required to furnish a TIN when claim-
ing the benefit of a reduced rate under
an income tax treaty (other than with
respect to dividends on publicly traded
stocks) or because income is effectively
connected with a U.S. trade or busi-
ness. In addition, intermediaries, part-
nerships, foreign organizations claiming
to be tax-exempt under section 501(c),
and private foundations would be re-
quired to furnish a TIN. A TIN would
be an IRS Individual Taxpayer Identi-
fication Number (ITIN), a Social Se-
curity Number (SSN), or an Employer
Identification Number (EIN). A non-
resident alien individual not eligible for
a social security number would be able
to obtain an ITIN from the IRS. See
proposed regulations under section
6109 describing procedures for obtain-
ing an ITIN.
Paragraph (e)(5)(i) provides that a
qualified intermediary may furnish a
single intermediary withholding certifi-
cate to a withholding agent on behalf
of beneficial owners, other intermedi-
aries, and U.S. payees. The qualified
intermediary would have to obtain
certification or documentation from
these persons on whose behalf the
intermediary withholding certificate is
provided. Generally, the certification
and documentation would be the same
as that which a withholding agent is
required to obtain, subject to such
modifications as the intermediary’s
agreement with the IRS would provide.
It is anticipated that the terms of the
agreement would be flexible enough to
accommodate the individual circum-
stances of a particular qualified inter-
mediary, including any locally ap-
plicable know-your-customer rules or
practices. Therefore, the agreement
might acknowledge certain documen-
tary evidence procedures already in
place and not require additional docu-
mentation. Paragraph (e)(5)(ii) provides
that a qualified intermediary is a
foreign person that is a party to a
withholding agreement with the IRS
and is a clearing organization as
defined in §1.163–5(c)(2)(i)(D)(8), a
financial institution as defined in
§1.165–12(c)(1)(iv), a partnership, or
any other person acceptable within the
discretion of the IRS. A qualified
intermediary would be able to either
assume primary responsibility for with-
holding and reporting to the IRS (if so
permitted under its agreement with the
IRS) or leave that responsibility to the
withholding agent. A qualified inter-
mediary that assumes primary with-
holding responsibility would present an
intermediary withholding certificate to
the withholding agent or another
qualified intermediary representing that
it will withhold all appropriate amounts
and comply with all applicable report-
ing requirements. The withholding
agent or other qualified intermediary
would be allowed to rely on such a
certificate and not withhold. However,
the withholding agent would have to
file Forms 1042 and 1042–S under
section 1461 to report the payment to
the qualified intermediary and the
qualified intermediary’s EIN. See pro-
posed §1.1461–1(b)(2)(ii) and (c)(4)(ii).
A qualified intermediary that does
not assume primary withholding re-
sponsibility would present an inter-
mediary withholding certificate to a
U.S. withholding agent or another
qualified intermediary representing that
beneficial owners of U.S. income pay-
ments (other than gross proceeds) are
not U.S. persons and, if applicable,
qualify for a reduced rate of withhold-
ing. It is anticipated that a qualified
intermediary would establish separate
accounts for income subject to different
withholding rates. A single intermedi-
ary withholding certificate should serve
as documentation for all these separate
accounts. In addition, the qualified
intermediary would provide a Form W–
9 for each beneficial owner that is a

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U.S. person to whom payments of in-
come otherwise subject to withholding
are made and for whom reporting is
required under chapter 61 of the Code.
A qualified intermediary would gen-
erally have to agree to be subject to the
same reporting requirements as apply
to withholding agents under proposed
§1.1461–1(b) and (c), to allow periodic
inspection of its records, and to pay
any amount of tax liability determined
to be due. The IRS intends to agree to
arrangements with the qualified inter-
mediary so that, for example, inspec-
tion of records may be minimized
where the IRS otherwise gets sufficient
access to beneficial ownership informa-
tion, through annual reporting of TIN’s,
review of know-your-customer rules,
and selection of appropriate account
information, or through an exchange of
information program under a tax treaty.
In appropriate cases, the IRS may rely
on audits performed by an institution’s
approved external auditors where, for
example, under an income tax treaty or
local laws, the IRS would be given
access to appropriate auditor’s records
to verify compliance. Records may in-
clude workpapers of, reports prepared
by, and methodology employed by, the
approved external auditors. A proposed
revenue procedure providing guidance
with respect to withholding agreements
has been published as Announcement
96–23, 1996–18 I.R.B. 7.
Paragraph (e)(5)(v) specifies that a
foreign partnership that is a qualified
intermediary acting for its partners is a
withholding agent with respect to its
partners’ distributive shares of income
paid to the partnership. In that case, the
partnership is subject to the same with-
holding and reporting procedures as
would apply to a domestic partnership.
Thus, any arrangement whereby the
partnership would seek to shift primary
withholding responsibility to the with-
holding agent under the provisions of
paragraph (e)(5)(iv)(B) would not be
recognized.
Paragraph (f) contains a set of
presumptions upon which a withhold-
ing agent (for purposes of section
1441) and a payor (for purposes of the
1099 reporting provisions) would rely
to determine whether to treat a person
as U.S. or foreign if, at the time of
payment, the withholding agent or
payor does not have actual knowledge
of the status of the person to whom the
payment is made and lacks the required
documentation or knows or has reason
to know that the documentation it holds
is incorrect or unreliable. A presump-
tion under this paragraph (f) could be
rebutted by providing or correcting the
required documentation to the with-
holding agent or payor. Thus, these
presumptions would assist the payor in
determining whether the income paid is
subject to the 1099 reporting and
backup withholding regime (if paid to a
U.S. person that is not an exempt
recipient) or to the section 1441
withholding regime (if paid to a foreign
person).
Presumptions of foreign status result-
ing from the application of these
provisions would, when applied for
purposes of section 1441, only affect
whether the withholding agent should
withhold 30 percent from the payment
on the ground that the payment may,
under the provisions, be treated as
made to a foreign beneficial owner.
However, the presumptions could not
operate to deem the payee as having
established proof of foreign status for
purposes of claiming a reduced rate of
tax under the Code or an income tax
treaty.
Paragraph (f)(2)(i) addresses report-
able payments to a non-exempt recip-
ient (a non-exempt recipient is a person
for whom the payor must file a Form
1099; see proposed §1.6049–4(c)(1)(ii)
for a list of exempt recipients). Where
a withholding agent lacks the required
documentation, it would presume that
the payee is a U.S. individual. Accord-
ingly, the withholding agent would
withhold 31 percent under section
3406. Paragraph (f)(2)(ii) incorporates
the concept of the 30-day grace period
under §31.3406(d)–3(a) for a payee to
furnish a Form W–9 to the payor. Be-
cause it may take longer to obtain the
required documentation from a foreign
person than from a U.S. person, the
proposed regulations allow a withhold-
ing agent to treat a payee as a
beneficial owner that is a foreign
person for up to 90 days from the date
the agent credits the payee’s account
(or until the end of the calendar year if
earlier) if the withholding agent has the
name and a foreign address for the
account holder or a facsimile copy or
an electronic transmission of the infor-
mation on a withholding certificate.
This special rule would defer the
obligation to backup withhold under
section 3406 because there are suffi-
cient indicia of foreign status, but does
not defer the obligation to withhold
under section 1441, if applicable. If the
required documentation were provided
or corrected within the 90-day grace
period, the amount withheld may be
refunded to the payee under the adjust-
ment procedures described in proposed
§1.1461–2. The 90-day grace period
would be terminated if any part of the
proceeds in the account that are subject
to the grace period were withdrawn
(other than for purposes of withholding
an amount of tax). If the required
documentation were not provided or
corrected by the expiration of the grace
period, the payee would be presumed
to be a U.S. payee for purposes of
section 3406 and chapter 61 of the
Code from the date the account was
first credited.
A special rule for joint owners or
payees is provided in paragraph
(f)(2)(iii) that would permit a withhold-
ing agent to presume that a payment
made to joint owners or payees for
whom it does not hold the required
documentation is made to U.S. payees.
The grace period would apply to joint
payees if each payee qualified for its
application. If any one of them with-
drew any portion of the funds in the
account, then additional withholding
under paragraph (f)(2)(ii)(A) would be
required.
Paragraph (f)(2)(iv) addresses report-
able payments to an exempt recipient.
In that case, the withholding agent
could presume that the payee is a
foreign person if it knew the payee’s
TIN and the TIN began with the two
digits ‘‘98.’’ The withholding agent
also could presume that the payee is a
foreign person if the payee had a
foreign mailing address or the payment
were made outside of the United States
(as defined in proposed §1.6049–5(e)).
In other cases, the withholding agent
could presume that the exempt recip-
ient is a U.S. person. Thus, for
example, a U.S. withholding agent
making a payment of interest on a
registered obligation to a corporation
with an EIN beginning with the digits
‘‘98’’ would not have to backup with-
hold under section 3406 (because the
corporation is an exempt recipient).
However, it should withhold a 30 per-
cent tax under section 1442 because the
condition under §1.871–14(c)(1)(iii)
that a certificate of foreign status be
received by the U.S. withholding agent
for the interest to qualify as portfolio
interest would not be satisfied. Thus,
the withholding agent should treat the

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interest as not qualified for the port-
folio interest exemption for purposes of
section 1441(b)(9). Adjustments to the
tax may be made at a later time in
accordance with proposed §1.1461–2 if
the required documentation described
in proposed §1.871–14(c)(2) is later
furnished. See proposed §§1.871–
14(c)(3) and 1.1441–1(f)(5) for rules
addressing late received documentation.
Paragraph (f)(3) contains special pre-
sumption provisions for certain pay-
ments that are not subject to backup
withholding: scholarship and pension
income. In the case of scholarship and
grant income, the withholding agent or
payor may generally treat the payee as
a U.S. person unless it has U.S. visa
information in its records concerning
the payee. For pension and annuities,
the payment would be presumed to be
made to a U.S. person if the payor had
the payee’s Social Security number and
the payment were made either to a U.S.
mailing address or to a mailing address
in a foreign country with which the
United States has an income tax treaty
in effect that exempts residents of the
country from U.S. tax on that income.
In all other cases, the payor could
presume that the payee is a foreign
person. A withholding agent may use
these presumptions as a safe harbor or
may, at its option, choose to withhold
at a higher rate if it were unsure of the
application of the presumption in a
particular case.
Paragraph (f)(4) provides special
rules for pass-through entities. Para-
graph (f)(4)(i) provides rules for deter-
mining whether to treat a partnership as
foreign or domestic. The withholding
agent or payor could presume that the
partnership is a foreign partnership if
the withholding agent or payor actually
knows that the partnership’s EIN be-
gins with the digits ‘‘98,’’ if the
mailing address of the partnership is in
a foreign country, if the payment is
made outside of the United States (as
defined in proposed §1.6049–5(e)), or
if the withholding agent or payor
knows or had reason to know that the
partnership is foreign.
Under paragraph (f)(4)(ii), a with-
holding agent or payor that makes a
reportable payment to a person deter-
mined to be a foreign partnership could
presume that any partner for which it
does not hold the required documenta-
tion is a U.S. individual. In that case,
the payee would be treated as a U.S.
payee that is not an exempt recipient
and the payment would be subject to
reporting under chapter 61 of the Code
and to backup withholding under sec-
tion 3406.
Paragraph (f)(4)(iii) provides rules for
partners’ distributive shares. A domestic
partnership could treat a partner as a
U.S. payee if, at the time it is required
to withhold on a reportable payment, it
did not hold all of the required docu-
mentation for that partner. A foreign
partnership that is a qualified intermedi-
ary under proposed §1.1441–1(e)(5)(ii)
could treat a partner as a foreign payee
if, at the time it were required to
withhold on a reportable payment, it
could not associate the payment with the
required documentation.
Paragraph (f)(5) clarifies that a with-
holding agent that does not act in
accordance with the presumptions and
fails to withhold the required amount
may be liable under section 1461 or
3403 for the tax that should have been
withheld based upon the presumptions
in paragraph (f), unless the withholding
agent can demonstrate either that the
correct amount of tax was, in fact,
withheld or that the beneficial owner
paid the tax due. Proof of payment of
tax could be established on the basis of
a Form 4669 furnished by the benefi-
cial owner certifying the amount of tax
paid to the IRS. Proof that the correct
amount of tax was, in fact, withheld,
could be based upon obtaining the re-
quired documentation. Late-received
documentation could be accepted as
proof of status and entitlement to a
reduced rate of tax. However, if the
delays involved in obtaining this docu-
mentation affected its reliability, the
IRS could require further proof of
status or entitlement to a reduced rate.
Further, pursuant to section 1463 or
section 3403, the withholding agent
would be liable for interest under
section 6601, even though, ultimately,
there is no underlying tax liability.
Penalties may also apply.
Under paragraph (f)(6), a reportable
payment is an amount reportable under
section 3406(b) (without regard to any
exception to reporting under section
6041, 6041A, 6042, 6045, 6049,
6050A, or 6050N).
Paragraph (f)(7) provides that if
overwithholding occurs under section
1441 as a result of application of the
presumptions in paragraph (f), adjust-
ments may be made in accordance with
proposed §1.1461–2(a). Appropriate re-
funds and credits may be claimed under
section 1464 or 6414. Amounts over-
withheld under section 3406 are subject
to adjustments pursuant to §31.6413-
(a)–3(a)(1).
Paragraph (g) provides that these
rules are effective for payments made
after December 31, 1997. However,
transition rules are provided so that
valid certificates (as determined under
current rules) that are outstanding on
the date that is 60 days after these
regulations are published as final reg-
ulations may continue to be relied upon
for their period of validity. In addition,
dividends on publicly traded stocks are
given special transition relief. See
proposed §1.1441–6(b)(2).
§1.1441–2 Income subject to
withholding
Paragraph (a) restates the rules in
§§1.1441–1 and –3(a) of the existing
regulations limiting withholding to
items of income from sources within
the United States. Paragraph (b) sim-
plifies §1.1441–2(a) of the existing
regulations by providing that, for pur-
poses of chapter 3 of the Code, fixed
or determinable, annual or periodical
(FDAP) income is any income includ-
able in income under section 61,
subject to enumerated exceptions in
paragraph (b)(2) (including certain ex-
ceptions for original issue discount and
capital gains, including option pre-
miums). Under these proposed rules,
income paid under a notional principal
contract would be FDAP, but see pro-
posed §1.1441–4(a)(3) for an exemp-
tion from withholding.
Paragraph (b)(3) reflects the position
adopted by the IRS in TIR–877 (De-
cember 27, 1966) and in Rev. Rul. 68–
333, 1968–1 C.B. 390 that FDAP in-
cludes original issue discount paid by
an original issuer of bonds or other
obligations with original issue discount.
However, under the authority of section
1441(c)(8), only certain items of origi-
nal issue discount are currently subject
to withholding of tax under Chapter 3.
The lack of rules in this area in the
past reflects the difficulties in deter-
mining the amount of OID upon which
withholding should be applied. These
proposed regulations, however, identify
transactions in which information about
the amount of original issue discount
would generally be known or available
to the withholding agent. Therefore, the
proposed regulations require withhold-
ing on amounts paid upon sale by an

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obligor that is related to the original
issuer. In addition, amounts that fail to
qualify for the portfolio interest exemp-
tion under section 871(h) or 881(c)
(because, for example, the statement
described in section 871(h)(5) has not
been furnished to the U.S. withholding
agent) would also be subject to with-
holding, regardless of whether it is
possible for the withholding agent to
determine precisely the amount of OID.
See proposed §1.871–14(c)(2). If the
required documentation were not fur-
nished, the amounts could be treated as
paid to a U.S. or foreign payee based
upon the presumptions in proposed
§1.1441–1(f). If the amounts are pre-
sumed paid to a U.S. payee, backup
withholding under section 3406 might
apply. See §31.3406(b)(2)–(2). If the
amounts are presumed paid to a foreign
payee, withholding under section 1441
would apply (unless the OID instru-
ment had a maturity not exceeding 183
days from the date of issue).
Under these rules, the entire amount
of OID (as determined on the date of
issue) would have to be reported as
taxable if the exact amount of OID
were not known. Any amount of over-
withholding may be adjusted or re-
funded in accordance with the proce-
dures in proposed §1.1461–2(a) or
§1.1464–1.
The proposed changes to the OID
rules would be effective for OID on
obligations issued after a date that is 60
days after these regulations are pub-
lished as final regulations.
Paragraph (c) restates §1.1441–2(b)
of the existing regulations to eliminate
the reference to pre-1967 payments. It
also eliminates the reference to items
of income under section 402(a)(2) and
403(a)(2), relating to payments from
certain employees trusts or under
employee annuities, in order to con-
form to the amendment made to sec-
tions 1441(b) and (c)(5) by Public Law
102–318 that deleted these sections
from the requirement of withholding
under section 1441.
Paragraph (d) lists exemptions from
withholding for certain items that
otherwise constitute FDAP income.
Paragraph (d)(1) lists the exceptions
that are not conditioned upon furnish-
ing documentation (e.g., interest on
bearer or foreign targeted registered
obligations, short-term obligations).
However, documentation may be re-
quired under the 1099 reporting provi-
sions in order to avoid reporting under
sections 6041 or 6049 and backup
withholding under section 3406. Para-
graph (d)(2) lists two other exceptions,
but those exceptions are conditioned
upon furnishing documentation de-
scribed in proposed §1.871–14(c)(2).
The exceptions are portfolio interest on
registered obligations described in sec-
tion 871(h)(2)(B) or 881(c)(2)(B) (other
than foreign targeted obligations) and
bank deposit interest described in sec-
tion 871(i)(2)(A). Because bank deposit
interest is not subject to beneficial
owner documentation requirements un-
der current rules, the regulations pro-
pose a transition rule that would allow
interest paid on accounts in existence
on or before a date that is 60 days after
these regulations are published as final
regulations to continue to be subject to
current rules until December 31, 1999.
Paragraph (e) clarifies the meaning
of payment for purposes of withhold-
ing. An amount would be considered
paid when it is includable in income
under the cash basis method of ac-
counting. Under paragraph (e)(2), in-
come reallocated under section 482
from a U.S. person to a related foreign
person would be considered a payment
for withholding tax purposes. A pay-
ment would also be considered to be
made if income arose as a result of a
secondary adjustment made after in-
come is allocated under section 482,
unless the taxpayer entered into a
repatriation agreement that eliminated
the liability for withholding. Paragraph
(e)(3) provides that income is not
considered paid if it is blocked under
certain executive authority, but is con-
sidered paid on the date the blocking
restriction is removed and, therefore,
subject to withholding as of that date.
Paragraph (e)(4) provides special pay-
ment rules for dividends. These rules
are similar to those in effect for
purposes of backup withholding. See
§31.3406(b)(2)–4. Paragraph (e)(5) co-
ordinates the payment election for
branch interest tax under §1.884–
4(c)(1) with section 6049 and the with-
holding provisions under section 1441.
§1.1441–3 Amounts subject to
withholding
Paragraph (a) restates the rule in
§1.1441–2(a)(1) of the existing regula-
tions that withholding is generally
imposed on the gross amount of in-
come. Paragraph (b) provides for spe-
cial withholding rules for interest.
Paragraph (b)(1) restates the rule in
§1.1441–3(c)(3) of the existing regula-
tions that requires withholding on the
entire amount of stated interest owed
on an interest-bearing obligation, re-
gardless of the character of the
amounts paid. The heading is modified
to eliminate any inference that this rule
is limited to payments on defaulted
interest coupons. Paragraph (b)(2)
restates the exemption from withhold-
ing in §1.1441–4(h) of the existing
regulations regarding sales of obliga-
tions between interest payment dates.
An anti-abuse rule is added that would
require withholding where the with-
holding agent knew or had reason to
know that the sale transaction was part
of a plan the principal purpose of
which was to avoid withholding
through a pattern of sales and
repurchases.
Paragraph (c) provides rules relating
to corporate distributions and substan-
tially relieves the withholding burden
imposed under §1.1441–3(b) of the
existing regulations on these distribu-
tions. Under the proposed regulations, a
corporation could determine the amount
of a distribution subject to withholding
based on a reasonable estimate of
available earnings and profits for the
taxable year. A corporation that made a
reasonable estimate, but nonetheless
underwithheld, would remain liable for
the amount of tax underwithheld (and
interest), but not penalties. These pro-
posed regulations adopt the same ‘‘rea-
sonable estimate’’ standard as is
provided under §31.3406(b)(2)–4(c)(2).
Under paragraph (c)(2)(ii), an inter-
mediary could rely on a reasonable
estimate represented by the distributing
corporation. The distributing corpora-
tion would be made liable for any
amount of underwithholding where the
withholding agent had relied on the
representation and the estimate had not
been reasonably determined.
Paragraph (c)(3) proposes special
procedures for withholding on certain
distributions made by a Regulated
Investment Company (RIC). In order to
determine whether a withholding obli-
gation arises in that case, a RIC would
benefit from the same exceptions that
would apply to other corporations for
distributions payable in stock or stock
rights or distributions treated in part or
in full as in exchange for stock. In
addition, the proposed regulations pro-
vide that no withholding is required for
a distribution that is a capital gain
dividend defined in section 852(b)-

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(3)(C) or an exempt interest dividend
defined in section 852(b)(5)(A). Special
procedures are proposed for implement-
ing these exemptions, however, because
a RIC must specifically designate the
extent to which a distribution falls
under one of these provisions. Under
applicable rules, the designation may
be made as late as 60 days after the
close of the RIC’s taxable year, and
after making the designation, the RIC
may find that the amount so designated
exceeds what the Code and the regula-
tions allow. This presents special diffi-
culties under section 1441, which as-
sumes that the amounts subject to
withholding are fixed at the time they
are paid.
To address these special difficulties,
paragraph (c)(3) would allow a RIC to
designate interim distributions as being
subject to section 852(b)(3)(C) or
852(b)(5)(A). If it later determined that
the designation was in excess of what
was permitted and, as a result, had
underwithheld, the RIC would have to
satisfy the tax liability and could adjust
the withholding pursuant to proposed
§1.1461–2(b). A RIC would not be
subject to penalties for failure to
withhold timely, provided the designa-
tion was based upon a reasonable esti-
mate when made. However, interest
would apply under section 6601. In
addition, the RIC might be liable for
penalties if the IRS determined that the
e s t i m a t e s w e r e n o t r e a s o n a b l y
determined.
Paragraph (d) restates, without sig-
nificant changes, the rule in §1.1441–
3(d) of the existing regulations regard-
ing withholding on the full amount
realized from the sale of property
where the withholding agent does not
know the amount of gain subject to
withholding. A withholding agent may,
however, determine gain based on the
beneficial owner’s withholding certifi-
cate if it indicates the beneficial
owner’s basis in the property sold. This
rule is of limited application as most
capital gains are exempt from with-
holding under section 1441.
Paragraph (e) restates the rule in
§1.1441–7(c) of the existing regulations
pertaining to payments in kind. The
property conversion requirement under
current rules would be made optional.
Instead, the withholding agent could
choose to obtain payment from another
source. The regulations further propose
to clarify that the amount of a payment
in kind is measured by the fair market
value of the property transferred or of
the services provided. Payments made
in foreign currency require a conver-
sion of the amount of tax using the
spot rate (as defined in §1.988–1(d)(1))
or a reasonable spot rate convention.
Paragraph (e)(3) provides guidance
where the withholding agent’s satisfac-
tion of the beneficial owner’s tax
liability constitutes additional income
to the beneficial owner that is subject
to withholding. In that case, the final
withholding tax liability would be cal-
culated under a gross-up formula.
The provisions currently stated under
§1.1441–3(j), relating to conduit fi-
nancing arrangements, are proposed to
be incorporated without change into a
new paragraph (f). These provisions are
not reproposed.
The address rule in §1.1441–3(b)(3)
of the existing regulations would be
eliminated and replaced by require-
ments to furnish appropriate documen-
tation or to establish foreign status and,
if applicable, residence in a treaty
country. See proposed §1.1441–1(e)
and 1.1441–6. Section §1.1441–3(c)(1)
requiring withholding in the case of
interest paid on obligations issued by
the U.S. government would be deleted
as unnecessary given the provisions in
§1.1441–2(a) describing income subject
to withholding. Section §1.1441–3(c)(4)
addressing unknown owners would also
be deleted because the presumption
provisions in §1.1441–1(f) provide
guidance. The special rules for tax-free
covenant bonds issued prior to 1934
are proposed to be deleted. Comments
are solicited as to whether these rules
are still necessary.
§1.1441–4 Certain exemptions from
withholding
Paragraph (a)(1) restates, without
significant change, the provisions in
§1.1441–4(a) of the existing regulations
regarding the exemption from with-
holding for certain income effectively
connected with the conduct of a trade
or business within the United States.
The regulations clarify that the exemp-
tion under this section does not apply
to claim an exemption under an income
tax treaty (i.e., income not attributable
to a permanent establishment). Claims
of treaty benefit must be made under
the procedures described in proposed
§1.1441–6.
Under paragraph (a)(2)(i), a with-
holding agent could rely on a claim
that income is effectively connected
with the conduct of a trade or business
within the United States if it held a
withholding certificate so stating. The
regulations do not permit a withholding
agent to rely on a qualified intermedi-
ary withholding certificate to grant a
reduced rate of withholding for income
claimed to be effectively connected,
except in the case of a qualified inter-
mediary that is a partnership acting for
its own account. A partnership that
does not claim to be a qualified inter-
mediary could also furnish an inter-
mediary withholding certificate de-
scribed in proposed §1.1441–1(e)(3)(iii)
(i.e., the transmittal certificate normally
required from a partnership transmitting
its partners’ documentation under the
procedures described in proposed
§1.1441–5(b)). For purposes of claim-
ing an effectively connected income
exemption, it would not be necessary to
attach the partners’ documentation to
the certificate since the exemption is
available regardless of the status of the
partners and, under section 1446, the
partnership is required to withhold. The
validity period of a withholding certifi-
cate used to claim an effectively con-
nected exemption is proposed to be
extended from one year to three years
(subject to amendment if a change in
circumstances affected the character of
the income that the beneficial owner
anticipated would be effectively con-
nected). This rule should significantly
ease the burden on continuing transac-
tions that generate effectively con-
nected income every year.
The regulations propose to eliminate
the requirement that the certificate be
attached to the Form 1042–S; the with-
holding agent would be required to
state the beneficial owner’s TIN on the
Form 1042-S. See proposed §1.1461–
1(c)(1)(i). If the withholding certificate
were silent as to whether the income is
effectively connected or if the required
documentation were lacking, incorrect,
or unreliable, the withholding agent
should presume that the income is not
effectively connected.
The rules provided in §1.1441–4(f)
of the existing regulations are proposed
to be restated in a new paragraph
(a)(2)(ii) and are not reproposed. Para-
graph (a)(2)(iii) provides for special
rules for payments made to joint
owners that would require each joint
owner to provide a withholding certifi-
cate certifying that the income is
effectively connected with a trade or

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business in the United States. These
rules are consistent with the joint
owners rules provided under the section
3406 regulation. See §31.3406(h)–2(a).
Paragraph (a)(3) provides that no
withholding is required on income from
notional principal contracts regardless of
whether a withholding certificate is pro-
vided. However, such income would
have to be reported on a Form 1042 and
1042–S. This rule would significantly
simplify the paper flows currently asso-
ciated with these transactions.
Paragraph (a)(4) parallels the rule in
proposed §1.1441–1(f)(5) regarding the
consequences of acting in a manner
contrary to prescribed presumptions.
Late received documentation could re-
lieve the withholding agent from the
tax liability. However, an interest
charge would apply under section 6601
on the amount that should have been
withheld even if, ultimately, there is no
underlying tax liability. In addition,
penalties might apply.
Paragraph (b) of the existing regula-
tions concerning compensation for per-
sonal services of an individual is
substantially unchanged. A new para-
graph (b)(1)(ii) is added to require that
withholding on distributions from cer-
tain qualified pension plans and an-
nuities occur under section 1441 rather
than under section 3405 as was re-
quired under §1.1441–4T(b)(ii) (which
expired on February, 1993). A new
paragraph (b)(1)(vi) is also added that
would allow employers to wage with-
hold on compensation that is otherwise
exempt from wage withholding by
reason of section 3402(e). This rule
provides relief for employers of non-
resident alien individuals who derive
income from sources partly within and
partly without the United States on a
regular basis (e.g., crew members
working on cruise ships). Without this
rule, employers would have to withhold
at the 30 percent rate instead of the
lower wage withholding rate.
The provisions under paragraph (b)-
(2) of the existing regulations (dealing
with a claim of reduced rate of with-
holding on personal service income
under an income tax treaty) are un-
changed with one exception. The 10-
day review rule in paragraphs (b)(2)(i)
and (iv) would be extended to 20 days.
This extension is necessary because of
the increase in the number of Forms
8233 that the IRS receives.
Paragraph (b)(6) is added to elimi-
nate the requirement in §1.1441–3(e) of
the existing regulations to pro-rate the
personal exemption based on the period
during which a nonresident alien indi-
vidual is present in the United States
during the taxable year. Therefore, the
entire personal exemption amount
could be taken into account to deter-
mine the base amount on which to
withhold.
Paragraph (c) incorporates the provi-
sions in §1.1441–2(c) of the existing
regulations dealing with participants in
certain exchange or training programs
and provides additional guidance with
respect to payments of scholarship or
fellowship grants to nonresident alien
individuals. It reflects 1988 and 1994
statutory amendments to section 1441
concerning certain visa holders. Such
income is subject to a lower withhold-
ing rate of 14 percent under section
871(c). The regulations propose an
alternate withholding election so that
taxpayers may choose to be subject to
the withholding rates applicable to
wages, which in many cases are likely
to result in a lower rate. Also, individ-
uals who receive both scholarship or
grants and compensation income from
the same withholding agent could
choose to combine all income on Form
8233 to claim a reduced rate under a
tax treaty for both types of income.
Paragraphs (d) (dealing with an-
nuities) and (e) (dealing with central
banks of issue and the Bank of Inter-
national Settlement) merely reflect con-
forming changes regarding the pro-
posed documentation requirements.
§1.1441–5 Withholding on payments
to pass-through entities
The existing regulations in §1.1441–
5 address claims of U.S. status. These
provisions are restated, with modifica-
tions, in proposed §1.1441–1(d).
This section, as revised, would pro-
vide special withholding procedures for
payments to partnerships. Paragraph (a)
deals with domestic partnerships. As
under current regulations, payments to
domestic partnerships would not re-
quire withholding, even if the partners
were foreign persons. A domestic part-
nership is the withholding agent for
items of income included in the dis-
tributive share of a partner that is a
foreign person. Paragraph (b) proposes
to modify the current rules for pay-
ments to foreign partnerships to permit
a look-through approach, so that claims
of reduced rate could be presented by
the partnership on behalf of the part-
ners (including partners that are U.S.
persons). The look-through approach
would apply through tiers of foreign
partnerships. In the alternative, a for-
eign partnership could, under an agree-
ment with the IRS, become a qualified
intermediary so that the partners’ docu-
mentation would not have to be fur-
nished to the withholding agent. See
proposed §1.1441–1(e)(5) for rules ap-
plicable to qualified intermediaries.
Paragraph (b)(2) clarifies how the look-
through approach would operate in the
case of a tiered partnership. Generally,
the partnership would have to look
through tiers until it reached the
beneficial owner (as determined under
proposed §1.1441–1(c)(6)). However, it
could stop at any level in the chain that
constitutes a payee (as defined in
proposed §1.1441–1(c)(3)).
§1.1441–6 Claim of a reduced rate
under an income tax treaty
The proposed regulations eliminate
the ‘‘address’’ rule in §1.1441–6(c)(1)
of the existing regulations and in
regulations under several income tax
treaties, which permits a withholding
agent to grant a reduced rate of tax
under a treaty based upon the address
of the payee (including a nominee).
Paragraph (b)(1) provides general pro-
cedures for reliance by a withholding
agent on a claim for a reduced rate of
withholding under a treaty based upon
the documentation requirements de-
scribed in proposed §1.1441–1(e)(1)(i).
A withholding agent could rely upon a
beneficial owner withholding certificate
described in proposed §1.1441–1(e)(2)
as establishing both foreign status and
residence in the treaty country provided
a TIN is stated on the certificate. In
addition, in the case of dividends with
respect to which an advance ruling is
required in order to secure the reduced
rate of tax under the tax treaty, the
withholding certificate would have to
state that the beneficial owner has
obtained such a ruling. Such rulings are
currently required under a very limited
number of tax treaties: Austria, Den-
mark, Ireland, and Switzerland. See
paragraph (e) regarding the procedures
for obtaining such a ruling. Further, for
amounts exceeding $500,000 in the
aggregate for the taxable year paid to a
beneficial owner related to the with-
holding agent, the beneficial owner
would have to indicate on the certifi-
cate that it will file a Form 8833 under

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section 6114. The regulations under
section 6114 are proposed to be modi-
fied accordingly. Claims of treaty
benefit could also be made on the basis
of an intermediary withholding certifi-
cate described in proposed §1.1441–
1(e)(3). Further, a U.S. withholding
agent could act through an authorized
foreign agent described in proposed
§1.1441–7(c)(2).
Paragraph (b)(2) provides special
rules for certain dividends paid on
stock that is traded on a U.S. estab-
lished market. For these dividends, the
withholding agent could grant treaty
benefits based upon the same documen-
tation procedures as are proposed to
apply to portfolio interest on registered
obligations (e.g., no TIN is required on
a beneficial owner withholding certifi-
cate). See proposed §1.871–14(c)(2).
Paragraph (b)(3) provides that the
competent authorities may agree to
different certification procedures under
an applicable tax treaty.
Paragraph (b)(4) clarifies the manner
in which beneficial owners could claim
benefits under a tax treaty where
foreign law principles apply to identify
the beneficial owner of a payment
made to a foreign entity. Under pro-
posed §1.1441–1(c)(6)(ii)(B), the bene-
ficial owner would be determined
based upon the laws of the country
whose tax treaty with the United States
is invoked to claim a reduced rate of
tax.
These procedures are intended to
apply in a reciprocal manner. There-
fore, paragraph (b)(4)(iv) provides that,
if the IRS determined that a treaty
partner is not identifying beneficial
owners in a similar manner and, as a
result, denies benefits under an other-
wise applicable treaty to an entity
organized in the United States or to
interest holders residing in the United
States, the benefits of these procedures
could be suspended for entities
organized, or interest holders residing,
in that country until the competent
authorities reached a reciprocal agree-
ment on the application of treaty
benefits in such cases. Suspension of
benefits under this provision would be
effective on a prospective basis only.
Paragraph (c) states the rules regard-
ing certification of a TIN by the IRS.
These procedures would apply to pay-
ments for which a Form W–8 is
furnished with a TIN. They are directed
to beneficial owners (or their agents)
and are designed to ensure that the IRS
can verify the beneficial owner’s status
as a resident of a treaty country based
upon the information return later filed
by the withholding agent on Form
1042–S. If the IRS determined that the
TIN does not support the beneficial
owner’s claim of residence in the treaty
country, it would so notify the with-
holding agent. The IRS could waive the
requirement that a taxpayer certify its
TIN with the IRS when it implements
procedures to verify a taxpayer’s status
directly with a foreign competent au-
thority. The IRS could also certify a
TIN based upon representations made
by a qualified intermediary.
The IRS would certify a TIN based
upon a certificate of residence or
documentary evidence. Paragraph (c)(3)
describes a certificate of residence as a
certificate issued by the tax authorities
of the treaty country certifying that the
taxpayer files income tax returns as a
resident of that country and is current
on his filing obligations. Paragraph
(c)(4) describes documentary evidence
as a document that is no more than
three-years old and sufficiently identi-
fies the person and the residence of
that person in the treaty country.
Paragraph (e) incorporates the provi-
sions in existing regulations that condi-
tion the benefit of the reduced five-
percent rate on related party dividends
to an advance ruling from the IRS
determining that the parent-subsidiary
relationship is not established or main-
tained with the principal purpose to
secure the reduced rate. The ruling
would be required only if so required
under an applicable treaty. It must be
requested prior to the payment of the
dividend. While a request made after
payment would not disqualify the divi-
dend from the benefit of the reduced
rate if a favorable ruling is later
obtained, the withholding agent would
nevertheless withhold. Failure to do so
would subject the withholding agent to
an interest charge under section 6601.
Also, the withholding agent would be
liable for the tax and related penalties
if a favorable ruling were not issued.
See proposed §1.1441–1(f)(5) regarding
the consequences to the withholding
agent when it does not withhold the
full amount even though it does not
hold the required documentation prior
to payment.
The regulations are proposed to be
effective for payments made after
December 31, 1997. However, certifi-
cates issued on or before the date that
is 60 days after these regulations are
published as final regulations will
continue to be valid until they expire,
based upon existing regulations. In
addition, because no documentation is
currently required for dividends, the
regulations propose a transition rule
that would allow dividends paid on
publicly-traded stock to accounts in
existence on or before a date that is 60
days after these regulations are pub-
lished as final regulations to continue
to be subject to the current address rule
until December 31, 1999.
§1.1441–7 General provisions relating
to withholding agents.
This section modifies §1.1441–7 of
the existing regulations dealing with
withholding agents. Paragraph (a) clar-
ifies that a withholding agent is any
person that has the control, receipt,
custody, disposal, or payment of an
item of income and not merely a
person that pays or causes an amount
to be paid. If there are several with-
holding agents with respect to one
payment, only one tax should be with-
held and only one return should be
filed.
Paragraph (b) restates the ‘‘actual
knowledge or reason to know’’ stand-
ards applicable to a withholding agent
as in effect under current law. The IRS
and Treasury are aware that the ap-
plication of a ‘‘reason to know’’
standard without limitation may be
impractical in the case of financial
institutions handling large volumes of
transactions for many customers.
Therefore, the regulations propose to
limit the due diligence expected from
withholding agents paying portfolio
interest, deposit interest, or dividends
on publicly traded stock. Under para-
graph (b)(2)(ii), a withholding agent’s
due diligence regarding a beneficial
owner certificate would be limited to
examining the address stated on the
certificate. If this information indicated
that the beneficial owner might be a
U.S. taxpayer or conflicted with infor-
mation that the withholding agent
otherwise had in its records for that
account, the withholding agent would
have to obtain specified documentation
to verify the beneficial owner’s claim
of foreign status or residence. Para-
graph (b)(3) proposes to incorporate
rules consistent with those under sec-
tion 3406 dealing with universal ac-
counts. Therefore, if the withholding
agent used a system of universal
accounts, it would be required to use

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that system to determine the scope of
its due diligence under the regulations.
Paragraph (c) restates and expands
the provisions in §1.1441–7(b) of the
existing regulations pertaining to au-
thorized agents and adds provisions
regarding an authorized foreign agent.
This new concept is intended to facili-
tate compliance by U.S. withholding
agents that make payments through
their agent abroad. By imputing the
acts of a foreign agent to a U.S.
withholding agent, the required docu-
mentation could remain with the for-
eign agent and would not have to be
provided to the U.S. withholding agent.
However, the regulations require that
the agent be ‘‘authorized’’ in order to
insure that the IRS can verify the
foreign agent’s compliance with the
withholding procedures, which, in turn,
would determine whether the U.S.
withholding agent has itself complied.
See proposed §1.1461–1(b)(2)(iii) and
(c)(4)(iii) regarding corresponding fil-
ing requirements.
Section §1.1441–7(b)(3) of the exist-
ing regulations is proposed to be
deleted, pending comments on the con-
tinuing necessity of providing guidance
on tax-free covenant bonds.
Paragraph (d) restates without
changes the provisions in §1.1441–
7(a)(2) of the existing regulations deal-
ing with the United States as a
withholding agent. Paragraph (e)
restates without changes the provisions
in §1.1441–3(c)(2) of the existing
regulations dealing with assumed obli-
gations. Section §1.1441–7(c) of exist-
ing regulations dealing with payments
other than money would be deleted and
restated in proposed §1.1441–3(f) deal-
ing with withholding procedures for
payments in kind.
§1.1441–8T Foreign government and
international organization exemption
from withholding
This section exempts from withhold-
ing certain types of income excluded
from gross income under section 892
that are paid to foreign governments
and international organizations. Revi-
sions are proposed to paragraph (b) of
the existing regulations to conform the
certification procedures to the proposed
withholding certificate procedures de-
scribed in proposed §1.1441–1(e)(1)(i).
Therefore, Form 8709 would be re-
placed by the standard withholding
certificate (Form W–8), meaning that
foreign governments and international
organizations would be relieved from
the requirement to furnish annual cer-
tification. A foreign government or an
international organization would not be
required to furnish a tax identifying
number. However, if it did, the certifi-
cate would be valid indefinitely for
income required to be reported on
Form 1042 or for which the withhold-
ing agent reports the TIN to the IRS.
See proposed §1.1441–1(e)(4)(ii).
§1.1441–9 Exemption from
withholding on exempt income of
foreign tax-exempt corporations and
foreign private foundations
This new section provides that in-
come paid to a foreign organization
described in section 501(c) would not
be subject to withholding under section
1442 if the income were not subject to
tax as unrelated business income under
section 511 and the entity were exempt
from tax under section 501(a). For pur-
poses of granting a reduced rate, a
withholding agent could rely on a with-
holding certificate satisfying the re-
quirements of proposed §1.1441–1(e)-
(1). A beneficial owner certificate must
include a taxpayer identifying number
and must certify that it will not be
subject to tax under section 511, and
that the IRS has issued a determination
letter. In the absence of such a letter,
the beneficial owner should provide an
opinion of counsel stating that the
organization meets the conditions for a
tax exemption under section 501(c).
Since the affidavit requirement for
foreign foundations is proposed to be
eliminated, foreign tax-exempt organi-
zations would be subject to the same
documentation requirements as would
apply to foreign foundations under
proposed §1.1443–1(b).
§1.1461–1 Deposit and return of tax
withheld
The provisions in §1.1461–1 of the
existing regulations pertaining to
ownership certificates for bond interest
are proposed to be deleted. Interest on
bonds described in this section would
be subject to the regular procedures
provided in the regulations under sec-
tions 1441 and 1443. The special rules
would no longer be necessary in view
of the substitute procedures provided in
the proposed regulations. Comments
are solicited as to the continuing need
for provisions governing tax-free cove-
nant bonds.
Section 1.1461–1 contains proposed
procedures for withholding agents to
pay the withheld tax and file the annual
income tax return and information
returns with respect to payments of
income subject to section 1441 with-
h o l d i n g . P a r a g r a p h ( a ) r e s t a t e s
§1.1461–3 of the existing regulations
regarding the payment of amounts
withheld. The provisions regarding
pre-1973 years are proposed to be
deleted as obsolete. Paragraph (b)
revises §1.1461–2(b) of the existing
regulations on the filing of returns of
amounts withheld. Paragraph (b)(1)
clarifies that the Form 1042 must
include the total amount of income
paid during the preceding calendar
year. Also, the filing date is changed
from March 15 to February 28 in order
to conform with the filing dates for
Form 1099. The proposed regulations
would eliminate the requirement to
attach the Forms 1042–S to the return.
Instead, the Forms 1042–S would have
to be filed separately with a transmittal
form. See paragraph (c)(1)(i).
Paragraph (b)(2) describes applicable
return requirements for multiple with-
holding agents. Generally, as under
current rules, only one Form 1042
would have to be filed for an item of
income. Exceptions to this general rule
are provided for payments to qualified
intermediaries where the U.S. withhold-
ing agent would have to file a return,
regardless of whether the qualified
intermediary assumed primary with-
holding responsibility for the payment
and regardless of whether the qualified
intermediary were also required to file
a return under its agreement with the
IRS. Another exception would be pro-
vided for payments to an authorized
foreign agent. In that case, the U.S.
withholding agent and the authorized
foreign agent would each be required
to make a return. The return of the
withholding agent would report
amounts paid to the authorized foreign
agent. The return of the authorized
foreign agent would report amounts
paid to the beneficial owner or its
intermediaries.
Paragraph (b)(3) requires that
changes to the originally filed Form
1042 be filed on an amended return on
a new Form 1042X. This change is
designed to facilitate the processing of
returns by the IRS and would be con-
sistent with the procedures for filing
other amended returns.
Paragraph (c) revises the provisions
in §1.1461–2(c) of the existing regula-

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tions regarding the filing of information
returns on Form 1042–S. As under
existing regulations, any income sub-
ject to withholding must be reported on
an information return on Form 1042–S
and a return would be due irrespective
of the fact that no tax was withheld
(e.g., the beneficial owner claimed an
exemption or the withholding agent
failed to withhold).
The provisions of §1.1461–2(c)(3) of
the existing regulations requiring that
the name of the beneficial owner be
reported on Form 1042–S would be re-
tained. However, more detailed guid-
ance is provided regarding reporting of
income paid to intermediaries. See
paragraph (c)(4) below dealing with
multiple agents. The proposed regula-
tions eliminate as unnecessary the
requirements under existing regulations
to attach any certificate, form, or
statement to the return.
Paragraph (c)(1)(ii) proposes new
rules pertaining to joint owners. A
single Form 1042–S may be provided
to one of the joint owners. In that case,
the withholding agent should provide
the Form 1042–S to the joint owner
whose status determines the tax with-
held. Further, any one owner may
request a separate Form 1042–S, but
the total amounts of income and tax re-
ported paid and withheld on all the
forms 1042–S may not exceed the total
amount of income actually paid and tax
actually withheld.
Paragraph (c)(2) replaces §1.1461–
2(c)(1) of the existing regulations and
states that the items of income that are
subject to reporting on Form 1042–S
are those items of income subject to
withholding, income from a notional
principal contract, and amounts de-
scribed in sections 6041 through 6050P
that are paid to a foreign person and
are not exempt from reporting under
those sections or the corresponding
regulations. This provision is intended
to standardize reports of payments to
foreign persons to the IRS and should
simplify compliance by withholding
agents. Paragraph (c)(2)(ii) lists the
exceptions to reporting on a Form
1042–S. As under current regulations,
items of income exempt from reporting
include portfolio interest on a bearer
obligation and original issue discount
on short-term obligations. An explicit
exception for reporting on deposits
described in section 871(i)(2)(A) would
be added. However, bank deposit inter-
est that is subject to withholding under
section 1441 (because, for example,
documentation was not furnished but
payments were made to a foreign ad-
dress; see special grace period provi-
sions under proposed §1.1441–1(f)(2)-
(i)(B)) would have to be reported.
Also, interest on bank deposit interest
paid to Canadian residents would have
to be reported based upon provisions
under final regulations under section
6049 published in the Rules and
Regulations section of this issue of the
Bulletin. In addition to the items
excepted from reporting under existing
§1.1461–1(c)(1), other items are added
that prevent duplicative reporting. Fi-
nally, the proposed regulations would
clarify that to the extent group-term life
insurance and other items of income
required to be reported pursuant to the
provisions in §§1.6041–2 and 1.6052–1
can be associated with wages required
to be reported on a Form W–2, then
such items may also be reported on a
Form W–2 instead of a Form 1042–S.
Paragraph (c)(3) restates the provi-
sions of §1.1461–2(c)(2) of the existing
regulations regarding the types of infor-
mation to be included on Form 1042–S.
It clarifies that the information could
be based on the information furnished
by or on behalf of the beneficial owner,
as corrected based on the withholding
agent’s actual knowledge if necessary.
In addition, the Form 1042–S would
have to include the TIN of the bene-
ficial owner if required to be shown on
the withholding certificate. Also, a
beneficial owner’s TIN that the benefi-
cial owner is not required to furnish
but which is actually known to the
withholding agent would have to be
reported on Form 1042–S.
Paragraph (c)(4) is added to provide
rules for filing Form 1042–S where
there are multiple withholding agents.
Generally, as with the Form 1042, only
one Form 1042–S must be filed with
respect to an item of income. Current
rules requiring the withholding agent to
identify the beneficial owners of pay-
ments made to agents, nominees, or
representatives, if known, would be
eliminated for payments to an inter-
mediary that either claims to be a
qualified intermediary or is an author-
ized foreign agent. In all other cases,
the information on a Form 1042–S
must be reported for each beneficial
owner. This would modify §1.1461–
2(c)(3)(i) of the existing regulations
providing that beneficial owner infor-
mation be reported only if known. For
payments made to a person claiming to
be a qualified intermediary or is an
authorized foreign agent, each with-
holding agent in the chain would be
permitted to report on one Form 1042–
S reflecting the payment made to the
next qualified intermediary or author-
ized foreign agent in the chain. In the
case of a payment to an authorized
foreign agent, however, the withholding
agent would be excused from the re-
quirement to report the beneficial
owner information only to the extent
that the authorized foreign agent actu-
ally complies with the filing require-
ments under paragraph (c)(4)(iv).
Paragraph (c)(5) is added to cross-
reference the magnetic media filing
requirements applicable to Forms
1042–S under §1.6011–1(c). Generally,
a filer of 250 or more Forms 1042–S
must file on magnetic media, unless a
waiver is granted.
Paragraph (d) would allow a with-
holding agent to provide a list of
taxpayer identifying numbers furnished
by or on behalf of beneficial owners to
the extent the agent has relied upon
such number to grant a reduced rate of
withholding tax. This is a special filing
procedure under which the reporting of
the associated amount of income would
not be have to be reported.
Finally, paragraph (e) clarifies the
provisions regarding indemnification of
withholding agents. Section 1461 in-
demnifies a withholding agent from the
claim of any person for the amount of
any payments made in accordance with
the provisions of chapter 3 of the Code.
Some commentators and withholding
agents have expressed concerns that
section 1461 could be interpreted to
limit indemnification to amounts that
were required to be withheld. The
proposed regulations clarify that a
withholding agent that withheld based
upon a reasonable belief that such
amount was withheld in accordance
with chapter 3 of the Code would be
treated for purposes of section 1461 as
having withheld in accordance with
chapter 3 (even though it is later
determined that the withholding agent’s
application of the rules was incorrect).
Additionally, a withholding agent
would be indemnified against any
claim of any person for the amount of
any withholding made in accordance
with the grace period provisions under
proposed §1.1441–1(f)(2)(ii).
Paragraph (f) restates without
changes §1.1461–2(f) of the existing

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regulations dealing with amounts that
may not constitute gross income, in
whole or in part. This rule would apply
to amounts subject to withholding
under proposed §§1.1441–3(b)(1) or
1.1441–3(d).
Paragraph (g) is added to provide
guidance on requests of extensions of
time to file Form 1042, Forms 1042–S,
and to furnish Forms 1042–S to recip-
ients. The rules with respect to such
requests would parallel those under
section 6081. A change would be
made, however, to the form to be used
for making a request for an extension
of time to file Forms 1042–S. Cur-
rently, these requests are made on
Form 2758; the proposed regulations
require such a request to be made on
Form 8809.
§1.1461–2 Adjustments for
overwithholding and underwithholding
of tax
This section has also been renum-
bered and, although the rules are the
same as those of the current regulations
in §1.1461–4, it has been redrafted to
simplify the language and to update the
examples. Specifically, the rule for
reimbursements remains the same, but
the rule in proposed §1.1461–4(b) with
respect to the adjustment of tax pay-
ments or deposits is now titled ‘‘set-
offs,’’ which more accurately describes
the adjustment process.
§1.1462–1 Withheld tax as credit to
recipient of income
Section 1.1462–1(a) is clarified by
stating that the amount of income from
which the tax is required to be
withheld includes the amount calcu-
lated under the gross-up formula in
proposed §1.1441–3(e)(3).
§1.1463–1 Tax paid by recipient of
income
This section provides that if the
income tax for which the beneficial
owner and the withholding agent have
joint liability under section 1461 has
been paid by either one of them, the
IRS may not collect from the other,
regardless of the original liability for
the tax. This section has been changed
to reflect the 1989 statutory amendment
(Public Law 101, 239, Sec. 7743(a))
that provides for the imposition of
interest and penalties on the party that
fails to withhold.
Prior proposed regulations under
section 871 and chapter 3 of the
Code
In 1976, proposed regulations were
published relating primarily to with-
holding and original issue discount. In
1984, proposed regulations were pub-
lished relating primarily to claims of
benefits under income tax treaties.
These proposed regulations were con-
tained in project number LR–2043,
published on July 12, 1976 (41 FR
28517) and project number LR–271–
83, published on September 10, 1984
(49 FR 35511). Both proposed regula-
tions are being withdrawn on April 22,
1996.
Regulations under sections 6041,
6041A, 6042, 6045, 6049, and 6050N
These proposed regulations provide
exceptions from information reporting
and backup withholding under sections
3406, 6041, 6041A, 6042, 6045, 6049,
and 6050N for payments to foreign
beneficial owners and for income paid
b y c e r t a i n f o r e i g n p a y o r s o r
middlemen.
Generally the regulations clarify and
simplify the regulations under sections
3406, 6041, 6042, 6045, and 6049 that
were proposed on February 29, 1988, at
53 FR 5991 (1988) (the 1988 proposed
regulations). In addition, the regula-
tions under these sections are proposed
to be revised. The regulations also
would add new exceptions from report-
ing (including the addition of middle-
man rules) to sections 6041, 6041A,
and 6050N. These proposed revisions
and new exceptions from reporting
parallel the exceptions under these
proposed regulations under sections
6042 and 6049. Further, parallel provi-
sions are found in each section for:
definitions of terms (such as non-U.S.
payor or non-U.S. middleman); pre-
sumptions as to whether a payee is
U.S. or foreign where the required
documentation is lacking, incorrect, or
unreliable; rules for payments to joint
owners; and rules for converting into
U.S. dollars amounts paid in foreign
currency. In addition, the proposed
regulations specify that the standard of
knowledge applicable to payors and
middlemen would be actual knowledge.
Thus, the ‘‘reason to know’’ standard
would not apply for purposes of the
reporting provisions.
The subparagraphs under proposed
§1.6042–3(a) (dealing with the defini-
tion of dividends for purposes of
information reporting under that sec-
tion) are proposed to be restated with
changes in drafting only. The substan-
tive rules in that paragraph would be
unchanged and are, therefore, not re-
proposed. Also, §1.6042–3(b)(3) and
(4) of the 1988 proposed regulations
(relating to capital gain dividends from
regulated investment companies and
payments to exempt recipients) would
be redesignated as subparagraphs (vii)
and (viii), respectively, of proposed
§1.6042–3(b)(1). These rules are not
reproposed.
This document also proposes to
revise the definition of an exempt
recipient in the case of a corporation.
Section §1.6049–4(c)(1)(ii)(A) of the
1988 proposed regulations provides that
a person would be treated as a corpora-
tion, and therefore as an exempt
recipient not subject to information
reporting, if the name of the payee or a
corporate resolution provided to the
payor clearly indicates corporate status
(the eyeball test). These proposed
regulations retain the eyeball test of the
1988 proposed regulations for pay-
ments (i) other than interest, dividends
and broker proceeds paid to accounts
established after a date that is 60 days
after the date that these regulations are
published as final regulations in the
Federal Register and (2) other than
interest, dividends and broker proceeds
that are not paid to a person to whom
the payor has an account relationship.
For interest and dividends paid to a
new account, the entity would be
required to provide either a corporate
resolution or similar document that
clearly indicates corporate status, a
Form W–9 with an EIN, or a Form W–
8. For interest and dividends paid
where an account relationship does not
exist, the payor may continue to rely
on the eyeball test if the payor also has
a mailing address of the payee in the
United States. The IRS and Treasury
understand that financial institutions
routinely request a corporate resolution
when opening accounts for entities.
Therefore, requiring such a document
would not significantly increase burden
and would improve compliance. This
proposed rule is reflected in paragraph
(c)(1)(ii)(A). In addition, the list of
international organizations under para-
graph (c)(1)(ii)(G) is proposed to be
eliminated as a simplification measure.
In addition, the 1988 proposed reg-
ulations under §1.6049–5 are proposed

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to be substantially redrafted, although
without significant substantive changes.
Paragraph (b)(6) provides an exception
from reporting for amounts from
sources outside the United States paid
outside the United States by a non-U.S.
payor or non-U.S. middleman. This
provision duplicates that found in the
1988 proposed regulations at proposed
§§1.6049–5(b)(8) and 1.6049–5(d)(3)-
(i), (ii), and the foreign source portion
of proposed §1.6049–5(d)(3)(iii).
Paragraph (b)(7) (which corresponds
to §1.6049–5(c)(6) of the 1988 pro-
posed regulations) would except port-
folio interest paid on bearer obligations
if paid outside the United States. In
these proposed regulations, this excep-
tion would not apply where a U.S.
middleman acts as a custodian, nomi-
nee, or other agent of the payee and
collects the amount for, or on behalf
of, the payee, whether or not the
middleman is also acting as agent of
the payor. Paragraph (b)(8) (which
corresponds to §1.6049–5(c)(6) of the
1988 proposed regulations) provides an
exception for portfolio interest paid on
registered obligations.
The provisions of §1.6049–5(b)(9) of
the 1988 proposed regulations, which
excepted from reporting amounts paid
by an international organization (or its
agent) on an obligation issued by the
international organization are proposed
to be incorporated in paragraph (b)(9)
of these new proposed regulations.
These rules are not reproposed.
Paragraph (b)(10) (which corre-
sponds to §1.6049–5(c)(5)(ii) of the
1988 proposed regulations) provides an
exception for certain short-term foreign
targeted obligations. Paragraph (b)(11)
(which corresponds to §1.6049–5(e)(1)
(the parenthetical language) and
§1.6049–5(e)(2)(i) and (ii) of the pro-
posed 1988 proposed regulations)
provides an exception for certain
foreign-targeted obligations issued by
persons engaged in the banking busi-
ness. Although the 1988 proposed
regulations limited the exceptions at
§1.6049–5(e)(2)(i) and (ii) to Cana-
dians, these proposed regulations ex-
pand the scope of the exceptions to
apply to all beneficial owners. How-
ever, as under the 1988 proposed
regulations, the exception would not
apply where a U.S. middleman acts as
an agent of the payee.
Paragraph (b)(12) (which corre-
sponds to §§1.6049–5(b)(7) and (c)(1),
(2), and (3) of the 1988 proposed
regulations) would except any amount
of U.S. source interest subject to
withholding under section 1441. Such
interest would be required to be re-
ported on a Form 1042–S under pro-
posed §1.1461–1(c). This exception
would replace §1.6049–5(b)(1)(vi),
(b)(1)(vi)(B)(1) and (b)(2)(iv) of the
existing regulations, which provide an
exception for reporting for bank deposit
interest paid to a foreign person, but
only if a Form W–8 (or documentary
evidence in appropriate cases) is
provided to the payor. The withholding
certificate requirement for bank deposit
interest is now found at proposed
§1.1441–2(d)(2).
Paragraph (b)(13) provides a new
exception for assets blocked pursuant
to an executive order.
Paragraph (b)(14) provides the gen-
eral rule for exempting any other
amount of otherwise reportable interest
based on specified documentation fur-
nished to the payor or middleman. The
standards of documentation are de-
scribed in paragraph (c) and would
generally parallel the documentation
standards proposed for purposes of
claiming a reduced rate of withholding
under section 1441. Therefore, the
payor could rely on a beneficial owner
or intermediary withholding certificate
described in proposed §1.1441–1(e)(1)-
(i) provided it complied with the
procedures described in proposed
§1.1441–1(e)(4)(iv) and (v) (dealing
with on-line confirmation and notifica-
tion procedures). No taxpayer identify-
ing number is required to be stated on
a beneficial owner withholding certifi-
cate. These proposed regulations retain
the permission under current regula-
tions to furnish documentary evidence
instead of a certificate for payments
made to an off-shore account. The on-
shore and off-shore distinction is simi-
lar to that found in the 1988 proposed
regulations. The provisions of the 1988
proposed regulations contained in para-
graphs (d), (e), (f), (g), (h), (i), and (l)
are withdrawn. Proposed paragraphs (j)
(relating to payments outside the
United States) and (k) (dealing with
original issue discount) of the 1988
proposed regulations would be renum-
bered as paragraphs (e) and (f), respec-
tively. The provisions in these para-
graphs are not restated.
§31.3401(a)(6)–1(e) Income exempt
from income tax
This section is amended to reflect the
new certification procedures under pro-
posed §§1.1441–1(e).
Backup withholding regulations under
section 3406
Several changes to the backup with-
holding regulations under section 3406
are proposed to conform those regula-
tions to the proposed information re-
porting and chapter 3 withholding
regulations. Section 31.3406(d)–3 (c)
would be amended to extend to 90 days
the current 30-day grace period appli-
cable to readily tradeable instruments
acquired directly from a payor if the
payment were made to a person for
whom indicia of foreign status existed,
as described in proposed §1.1441–
1(f)(2)(i)(B).
Section 31.3406(g)–1(e) would revise
the proposed regulations contained in
project number IA–224–82 published in
the Federal Register on September 27,
1990 (55 FR 39427) to restate the
principles that no backup withholding
applies under section 3406 to report-
able payments made outside the United
States even though documentary evi-
dence of non-U.S. status may be
required in order to exempt the pay-
ment from 1099 reporting, unless the
payor has actual knowledge that the
payee is a United States person. The
regulations propose to add an exception
for notional principal contract payments
that are made outside the United States.
Amendments to §31.6413(a)–3
The regulations under §31.6413(a)–3
are proposed to be amended in order to
allow payers to refund backup with-
holding in certain circumstances. Those
regulations currently prohibit a refund
of backup withholding except when
erroneous withholding has occurred. It
is proposed to expand the definition of
erroneous withholding to a situation
where the withholding agent backup
withholds because the payee fails to
provide sufficient documentation as
required under section 3406 and 1441
and the regulations under these sec-
tions. Where an appropriate withhold-
ing certificate is later provided, the
withholding agent could treat the
earlier withholding as erroneous with-
holding. However, the withholding cer-
tificate should to be received prior to
the end of the calendar year in which
the payment is made and prior to the
time the payor furnishes a Form 1099
to the payee with respect to the
payment for which the withholding
erroneously occurred. The amount re-
funded would be the amount actually

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withheld less the amount required to be
withheld, if any, under chapter 3 of the
Code.
Removal of Q&A regulations
The existing regulations under part
35a are proposed to be removed in
order to reflect the proposed revisions
in this document.
Amendments to §301.6109–1
Amendments to the regulations under
this section are currently pending to
authorize the IRS to issue taxpayer
identifying numbers to certain foreign
persons and to require a taxpayer to
state a TIN on any tax return filed
(other than an information return).
These regulations are proposed to be
further amended to require that a TIN
be stated on withholding certificates as
may be required under the regulations
proposed under sections 1441, 1442,
and 1443.
Amendments to §301.6114–1
The regulations under section 6114
are proposed to be amended to require
certain foreign entities to file a Form
8833 if they are claiming to be
qualified under a limitation of benefits
provision under an income tax treaty,
even though the income is also re-
ported on a Form 1042 by the with-
holding agent. The filing requirement
would be limited to payments between
related parties that exceed $500,000 for
the taxable year. See proposed
§1.1441–6(b)(1).
Amendments to §301.6402–3(e)
Paragraph (e) of the regulations
under §301.6402–3 is proposed to be
amended to require that returns filed to
claim a refund of tax include the
taxpayer’s TIN. In addition, the Form
1042–S would have to be attached to
the return and also show the taxpayer’s
TIN.
Removal of Certain Regulations
Under Tax Conventions
This document proposes to remove
certain regulations issued under income
tax conventions between the United
States and Greece, Germany, Switzer-
land, Ireland, France, Austria, Pakistan,
Sweden and Denmark. Removal of
these regulations will be done in
consultation with the competent au-
thorities of these countries.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and,
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration
for comment on their impact on small
business.
Comments and Requests for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing will be scheduled on
a date, time, and place as will be
published in the Federal Register.
******
Proposed Amendment to the
Regulations
Accordingly, under the authority of
26 U.S.C. 7805, 26 CFR chapter I is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order and removing the
entry for §1.1441–4T to read as
follows:
Authority: 26 U.S.C. 7805 ** *
Section 1.1441–2 also issued under
26 U.S.C. 1441(c)(4) and 26 U.S.C.
3401(a)(6).
Section 1.1441–3 also issued under
26 U.S.C. 1441(c)(4) and 26 U.S.C.
3401(a)(6). ** *
Section 1.1441–6 also issued under
26 U.S.C. 1441(c)(4) and 26 U.S.C.
3401(a)(6).
Section 1.1441–7 also issued under
26 U.S.C. 1441(c)(4) and 26 U.S.C.
3401(a)(6). ** *
§1.163–5 [Amended]
Par. 2. In §1.163–5 paragraph (c)(2)-
(i)(B)(5) is amended by removing the
language ‘‘subdivision (iii) of A–5 of
§35a.9999–4T’’ in the last sentence and
adding ‘‘§1.6049–5(c)(2)(ii)’’ in its
place.
Par. 3. Section 1.165–12(c) is
amended by:
1.Removing paragraph (c)(1)(iii).
2.Redesignating paragraphs (c)(1)-
(iv) and (c)(1)(v) as paragraphs (c)(1)-
(iii) and (c)(1)(iv), respectively.
3. Amending paragraphs (c)(1)(i)
and (c)(1)(ii) by removing the language
‘‘(c)(1)(v)’’ and adding ‘‘(c)(1)(iv)’’ in
its place.
4.Revising newly designated para-
graph (c)(1)(iii).
The revision reads as follows:
§1.165–12 Denial of deduction for
losses on registration-required
obligations not in registered form.
******
(c) * * *
(1) * * *
(iii)The holder may deliver an
obligation in bearer form that is offered
or sold inside the United States only if
the holder delivers it to a financial
institution that is purchasing for its
own account, the account of another
foreign institution, or an exempt orga-
nization that will comply with the
requirements of section 165(j)(3)(A),
(B), or (C). The holder may deliver a
registration-required obligation in
bearer form that is offered and sold
outside the United States to a person
other than a financial institution only if
the holder has evidence in its records
that such person is not a U.S. citizen or
resident and does not have actual
knowledge that such evidence is false.
Such evidence may include a statement
by that person that is delivered
electronically. For purposes of this
paragraph (c), the term deliver includes
a transfer of an obligation evidenced by
a book entry including a book entry
notation by a clearing organization
evidencing transfer of the obligation
from one member of the organization
to another member. For purposes of

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this paragraph (c), the term deliver
does not include a transfer of an
obligation to the issuer or its agent for
cancellation or extinguishment.
******
Par. 4. Section 1.871–14 is added to
read as follows:
§1.871–14 Rules relating to repeal of
tax on interest of nonresident alien
individuals and foreign corporations
received from certain portfolio debt
investments.
(a)General rule. No tax shall be
imposed under sections 871(a)(1)(A),
871(a)(1)(C), 881(a)(1) or 881(a)(3) on
any portfolio interest as defined in
sections 871(h)(2) and 881(c)(2) re-
ceived by a foreign person. But see
section 871(h) or 882(a) if such interest
is effectively connected with the con-
duct of a trade or business within the
United States.
(b)Rules concerning obligations not
in registered form—(1) In general.
[Reserved] For further guidance, see
§35a.9999–5(a), Answer 1.
(2)Convertible obligations. [Re-
served] For further guidance, see
§35a.9999-5(c), Answers 18 and 19.
(3)Coordination with withholding
and reporting rules. See §1.1441–
2(d)(1)(i) for an exception from docu-
mentation requirements otherwise ap-
plicable for purposes of section 1441.
See section 6049 and §1.6049–5(b)(7)
for rules relating to an exemption from
Form 1099 reporting and backup with-
holding under section 3406.
(c)Rules concerning obligations in
registered form—(1) In general. In the
case of interest paid on an obligation
that is in registered form, the term
portfolio interest means any interest
(including original issue discount)—
(i)That is paid on an obligation
issued after July 18, 1984;
(ii)That would be subject to tax
under section 871(a)(1)(A), 871(a)-
(1)(C), 881(a)(1) or 881(a)(3) but for
section 871(h) or 881(c); and
(iii)With respect to which a United
States (U.S.) person otherwise required
to deduct and withhold tax under
section 1441(a) or 1442(a) receives a
statement that meets the requirements
of section 871(h)(5) that the beneficial
owner of the obligation is not a U.S.
person.
(2)Required statement. A U.S. per-
son will be considered to have received
a statement that meets the requirements
of section 871(h)(5) if either it com-
plies with one of the procedures
described in this paragraph and does
not have actual knowledge or reason to
know that the beneficial owner is a
U.S. person or it complies with the
procedures described in paragraph (d)
or (e) of this section.
(i)The U.S. person (or its authorized
foreign agent described in §1.1441–
7(c)(2)) complies with the withholding
certificate procedures described in
§1.1441–1(e)(1).
(ii)The U.S. person complies with
the documentary evidence procedures
described in §1.6049–5(c)(2)(ii) (but
only if payments are made outside the
United States with respect to offshore
accounts). See §1.6049–5(e) for deter-
mining the place of payment and
§1.6049–5(d)(3) for a definition of
offshore accounts.
(iii)[Reserved] For further guidance,
see §35a.9999–5(b), Answer 9, sen-
tences 5 through 13.
(iv)The U.S. person complies with
procedures that the U.S. competent
authority may agree to with the compe-
tent authority of a country with which
the United States has an income tax
treaty in effect.
(3)Time for providing certificate or
documentary evidence. Interest on a
registered obligation shall qualify as
portfolio interest if the withholding
certificate or documentary evidence
that must be provided is furnished
before expiration of the beneficial
owner’s period of limitation for claim-
ing a refund of tax with respect to such
interest. See, however, §1.1441–1(f)(5)
for consequences to a withholding
agent that makes a payment without
withholding even though it cannot
associate the payment with the required
documentation prior to the payment.
(4)Coordination with withholding
and reporting rules. For an exemption
from withholding under section 1441
with respect to obligations described in
this paragraph (c), see §1.1441–2(d)(2).
For rules applicable to withholding
certificates, see §1.1441–1(e)(4). For
application of presumptions when the
U.S. person cannot associate the pay-
ment with the required documentation,
see §1.1441–1(f). For standards of
knowledge applicable to withholding
agents, see §1.1441–7(b). For rules
relating to an exemption from Form
1099 reporting and backup withholding
under section 3406, see section 6049
and §1.6049–5(b)(8). For rules relating
to reporting on Forms 1042 and 1042–
S, see §1.1461–1(b) and (c).
(d)Application of repeal of 30 per-
cent withholding to pass-through cer-
tificates. [Reserved] For further guid-
ance, see §35a.9999-5(e), Answers 21
and 22.
(e)Foreign-targeted registered obli-
gations. [Reserved] For further guid-
ance, see §35a.9999–5(b), Answers 12
through 15.
(f)Definitions. For purposes of this
section, the terms foreign person and
beneficial owner have the meaning set
forth in §1.1441–1(c)(2) and (c)(6),
respectively; the term withholding
agent has the meaning set forth in
§1.1441–7(a); and the term payment
has the meaning set forth in §1.1441–
2(e).
(g)Effective date—(1) In general.
This section shall apply to payments of
interest made after December 31, 1997.
(2)Transition rule. For purposes of
paragraph (c)(2)(i) of this section, a
withholding agent that holds a valid
Form W–8 on a date that is 60 days
after these regulations are published as
final regulations in the Federal Register
may treat it as a valid withholding
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
Par. 5. Section 1.1441–0 is added to
read as follows:
§1.1441–0 Outline of regulation
provisions for section 1441.
This section lists captions contained
in §§1.1441–1, 1.1441–2, 1.1441–3,
1.1441–4, 1.1441–5, 1.1441–6, 1.1441–
7, 1.1441–8T, and 1.1441–9.
§1.1441–1 Requirement for the
deduction and withholding of tax on
payments to foreign persons.
(a)Purpose and scope.
(b)General rule of withholding.
(c)Definitions.
(1)Withholding.
(2)Foreign person.
(3)Payee.
(4)Individual
(5)Foreign corporations.
(6)Beneficial owner.
(7)Chapter 3 of the Internal
Revenue Code.

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(d)Claim of U.S. status by payee or
beneficial owner.
(1)In general.
(2)Payments to a payee that is a
U.S. person.
(3)Payments to a foreign person
acting for a U.S. payee.
(e)Beneficial owner’s claim of for-
eign status.
(1)Withholding agent’s reliance.
(2)Beneficial owner withholding
certificate.
(3) I n t e r m e d i a r y w i t h h o l d i n g
certificate.
(4)Applicable rules.
(5)Qualified intermediaries.
(f)Presumptions.
(1)In general.
(2)Reportable payments to non-
exempt recipients.
(3)Special rules for scholarships,
grants, pensions, annuities, etc.
(4)Special rules for pass-through
entities.
(5)Failure to act in accordance
with presumptions.
(6)Reportable payment.
(7)Adjustment, refund, or credit
of overwithheld tax.
(g)Effective date.
(1)In general.
(2)Transition rules.
§1.1441–2 Income subject to
withholding.
(a)In general.
(b)Fixed or determinable annual or
periodical income.
(1)In general.
(2)Exceptions.
(3)Original issue discount.
(4)Securities lending transactions.
(c)Other income subject to with-
holding.
(d)Items of income not subject to
withholding under section 1441.
(1) Exemptions for which no
withholding certificate or
documentation is required.
(2)Exemptions for portfolio inter-
est and income on bank, etc.
deposits requiring a withhold-
i n g c e r t i f i c a t e o r d o c u -
mentation.
(e)Payment.
(1)General rule.
(2)Income allocated under section
482.
(3)Blocked income.
(4)Special rules for dividends.
(5)Certain interest accrued by a
foreign corporation.
(6)Payments other than in U.S.
dollars.
(f)Effective date.
§1.1441–3 Amounts subject to
withholding.
(a)Withholding on gross amount.
(b)Withholding on payments on cer-
tain obligations.
(1)Withholding at time of pay-
ment of interest.
(2)No withholding between inter-
est payment dates.
(c)Corporate distributions.
(1)General rule.
(2)Determination of accumulated
and current earnings and pro-
fits on the date of payment.
(3)Special rules in the case of
distributions from a regulated
investment company.
(4)Overwithholding of tax.
(d)Withholding on certain gains.
(e)Payments other than in U.S.
dollars.
(1)In general.
(2)Payments in foreign currency.
(3) Tax liability of beneficial
owner satisfied by withholding
agent.
(f)Conduit financing arrangements.
(g)Effective date.
§1.1441–4 Certain exemptions from
withholding.
(a)Certain income connected with a
U.S. trade or business.
(1)In general.
(2)Withholding agent’s reliance
on a claim of effectively con-
nected income.
(3)Income on notional principal
contracts.
(4)Failure to act in accordance
with presumption.
(b)Compensation for personal serv-
ices of an individual.
(1)Exemption from withholding.
(2)Manner of obtaining withhold-
ing exemption under tax
treaty.
(6)Personal exemption.
(c)Special rules for scholarship and
fellowship income.
(1)In general
(2)Alternate withholding election
(d)Annuities received under
qualified plans.
(e)Income of foreign central bank
of issue or the Bank for Interna-
tional Settlements.
(f)Effective date.
(1)General rule.
(2)Transition rules.
§1.1441–5 Withholding on payments
to pass-through entities.
(a)Domestic partnerships.
(1)Exemption from withholding
on payment to domestic part-
nerships.
(2)Withholding by a domestic
partnership.
(b)Foreign partnerships.
(1)In general.
(2)Special rules in the case of
tiered partnerships.
(3)Presumptions.
(4)Example.
(c)Trusts and estates. [Reserved]
(d)Effective date.
(1)General rule.
(2)Transition rules.
§1.1441–6 Claim of a reduced rate
of tax under an income tax treaty.
(a)In general.
(b)Reliance on claim of treaty
benefits.
(1)In general.
(2) Special rules for certain
dividends.
(3)Competent authorities agree-
ment.
(4)Special rules for payments to
certain foreign entities.
(c)Proof of tax residence in a treaty
country.
(1)In general.
(2)Certification of taxpayer iden-
tifying number.
(3)Certificate of residence.
(4)Documentary evidence estab-
lishing residence in the treaty
country.
(d)Joint owners.
(e)Related party dividends under
certain treaties.
(f)Effective date.
(1)General rule.
(2)Transition rules.
§1.1441–7 General provisions relating
to withholding agents.
(a)
Withholding agent defined.
(b)Standards of knowledge.
(1)In general.
(2)Reason to know.
(3)Universal accounts.
(c)Authorized agent.
(1)In general.
(2)Authorized foreign agent.

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(3)Notification.
(4)Liability of U.S. withholding
agent.
(5)Filing of returns.
(d)United States obligations.
(e)Assumed obligations.
(f)Conduit financing arrangements.
[Reserved]
(g)Effective date.
§1.1441–8T Foreign government and
international organization exemption
from withholding (temporary).
(a)Foreign governments.
(b)Statement claiming exemption.
(c)Effective date.
(1)In general.
(2)Transition rules.
§1.1441–9 Exemption from
withholding on exempt income of a
foreign tax-exempt organization and
foreign private foundations.
(a)Income not subject to tax under
section 511.
(b)Statement claiming exemption.
(c)Effective date.
(1)In general.
(2)Transition rules.
Par. 6. Section 1.1441–1 is revised to
read as follows:
§1.1441–1 Requirement for the
deduction and withholding of tax on
payments to foreign persons.
(a)Purpose and scope. This section
and §§1.1441–2 through 1.1441–9
provide rules for withholding under
section 1441 when a payment is made
to a foreign person. This section
provides definitions of terms used in
chapter 3 of the Internal Revenue Code
and regulations under that chapter. It
prescribes procedures to determine
whether a tax must be withheld under
chapter 3 of the Internal Revenue
Code, including presumptions for deter-
mining whether a withholding agent
should treat a payee as a United States
(U.S.) person or a foreign person.
Special procedures regarding payments
to foreign persons that act as intermedi-
aries are also provided. Section
1.1441–2 describes the income subject
to withholding under section 1441.
Section 1.1441–3 provides rules regard-
ing the amount subject to withholding.
Section 1.1441–4 provides exemptions
from withholding for certain income
effectively connected with the conduct
of a trade or business in the United
States, including certain compensation
for the personal services of an individ-
ual. Section 1.1441–5 provides rules
regarding withholding on payments
made to pass-through entities. Section
1.1441–6 provides rules regarding
claiming a reduced rate of withholding
under an income tax treaty. Section
1.1441–7 defines the term withholding
agent and provides rules regarding
withholding agents’ obligations to with-
hold. Section 1.1441–8T provides rules
for income received by a foreign
government that is excluded from gross
income under section 892. Section
1.1441–9 provides rules for payments
to foreign tax exempt organizations and
foreign private foundations.
(b)General rule of withholding. A
withholding agent (as defined in
§1.1441–7(a)) must withhold 30 per-
cent of the gross amount of a payment
(as defined in §1.1441–2(e)) of income
subject to withholding made to a payee
that is a foreign person unless the
beneficial owner of the income is a
foreign person entitled to a reduced
rate of tax and for the withholding
agent holds an appropriate withholding
certificate or documentation or unless
the beneficial owner of the income is a
U.S. person. For this purpose, a pay-
ment to the U.S. agent of a foreign
person is treated as a payment to a
foreign person if the withholding agent
has actual knowledge or reason to
know of the agency relationship. For
the documentation upon which a with-
holding agent may rely in order to treat
a payee or beneficial owner as a U.S.
person, see paragraph (d) of this
section. For the documentation upon
which a withholding agent may rely in
order to treat a payee or a beneficial
owner as a foreign person, see para-
graph (e) of this section. For applicable
presumptions if the withholding agent
cannot associate the payment with the
required documentation at the time of
payment, see paragraph (f) of this
section. For definitions of foreign
person, payee, and beneficial owner,
see paragraphs (c)(2), (3), and (6) of
this section, respectively. For the deter-
mination of income subject to with-
holding, see §1.1441–2(a). For a defini-
tion of an offshore account, see
§1.6049–5(d)(3). For withholding pro-
cedures applicable to payments to U.S.
and foreign partnerships, respectively,
see §1.1441–5(a) and (b). For with-
holding procedures applicable to pay-
ments to U.S. and foreign trusts and
estates, see §1.1441–5(c).
(c)Definitions—(1) Withholding.
The term withholding means the deduc-
tion and withholding of tax at the
applicable rate from the payment of
income.
(2)Foreign person. The term for-
eign person means a nonresident alien
individual, a foreign corporation, a
foreign partnership, a foreign trust, a
foreign estate, and any other person
that is not a United States person for
purposes of chapter 3 of the Internal
Revenue Code. A United States person
is a person described in section
7701(a)(30), the U.S. government (in-
cluding an agency or instrumentality
thereof), or a State and the District of
Columbia (including an agency or in-
strumentality thereof).
(3)Payee—(i) General rule. Except
as otherwise provided in paragraph
(c)(3)(ii) of this section, a payee is the
person to whom a payment is made.
See §1.1441–2(e) for the determination
of when a payment is considered made.
Treatment of a person as a payee has
consequences for purposes of withhold-
ing under chapter 3 of the Internal
Revenue Code (see paragraph (b) of
this section (relating to the general rule
of withholding)) as well as for pur-
poses of reporting income under the
provisions of chapter 61 of the Internal
Revenue Code and backup withholding
under section 3406. See paragraph
(d)(3) of this section for when a
withholding agent may treat a payment
to a foreign person as a payment made
to a payee that is a U.S. person if the
foreign person is acting for or repre-
senting the U.S. person.
(ii)Payments to a foreign part-
nership. For purposes of chapter 3 of
the Internal Revenue Code, section
3406, and chapter 61 of the Internal
Revenue Code, a payment made to a
foreign partnership shall be treated as a
payment made to the partners rather
than to the partnership. A withholding
agent may, however, treat a payment to
a foreign partnership as made to the
partnership (rather than to its partners)
if, with respect to the partnership, it
holds an intermediary withholding cer-
tificate described in paragraph (e)(3)(ii)
of this section (relating to a certificate
from a qualified intermediary) or an
intermediary withholding certificate de-
scribed in paragraph (e)(3)(iii) of this
section (relating to a certificate from a
foreign partnership) representing that
the income to which the certificate
relates is effectively connected with the

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conduct of a trade or business in the
United States. In addition, if the
withholding agent holds an intermedi-
ary withholding certificate described in
paragraph (e)(3)(iv) of this section
(relating to a certificate from an agent,
nominee, representative, etc.), then the
payee shall be the person on whose
behalf the partnership is receiving the
payment. In the case of tiered foreign
partnerships that are not treated as
payees under the provisions of this
paragraph (c)(3)(ii), the payees shall be
the partners of the next higher-tier
foreign partnership. Thus, the rules of
this paragraph (c)(3) shall apply
through any number of tiers of foreign
partnerships in order to determine
which partner is treated as the payee.
For example, if a payment is made to a
foreign partnership (second tier) and
one of the partners of the second tier
partnership is another foreign part-
nership (first tier) with two individual
partners, the payment to the second tier
is treated as made to the individual
partners of the first tier (unless the
second tier partnership has furnished
one of the intermediary withholding
certificates referred to in this paragraph
(c)(3)(ii)). If one of the partners in the
first tier is a domestic partnership, the
domestic partnership is treated as the
payee under the provisions of para-
graph (c)(3)(i) of this section, even
though one of the partners of the
domestic partnership might be a foreign
partnership. If the first tier foreign
partnership is a nominee and furnishes
an intermediary withholding certificate
described in paragraph (e)(3)(iv) of this
section, the person on whose behalf the
first tier partnership receives the pay-
ment is treated as the payee. See
§1.1441–5(b) for rules regarding proce-
dures applicable to beneficial owners’
claims of reduced rate of withholding
under chapter 3 of the Internal Revenue
Code.
(4)Individual—(i) Alien individual.
The term alien individual means an
individual who is not a citizen or a
national of the United States. See §1.1–
1(c).
(ii)Nonresident alien individual.
The term nonresident alien individual
means a person described in section
7701(b)(1)(B), an alien individual who
is a resident of a foreign country under
the residence article of an income tax
treaty and §301.7701(b)–7(a)(1) of this
chapter, or an alien individual who is a
resident of Puerto Rico, Guam, the
Commonwealth of Northern Mariana
Islands, the U.S. Virgin Islands, or
American Samoa as determined under
§301.7701(b)–1(d) of this chapter. An
alien individual who has made an
election under section 6013(g) or (h) to
be treated as a resident of the United
States is nevertheless treated as a
nonresident alien individual for pur-
poses of withholding under chapter 3
of the Internal Revenue Code.
(5)Foreign corporations. For pur-
poses of this section, a corporation
created or organized in Guam, the
Commonwealth of Northern Mariana
Islands, the U.S. Virgin Islands, and
American Samoa, is not treated as a
foreign corporation if the requirements
of subparagraphs (A), (B), and (C) of
section 881(b)(1) are met for such
corporation. Further, a payment made
to a foreign government or an interna-
tional organization shall be treated as a
payment made to a foreign corporation
for purposes of withholding under
chapter 3 of the Internal Revenue
Code.
(6)Beneficial owner—(i) General
rule. In the case of a payment of
income, the term beneficial owner
means the person required under U.S.
tax principles to include the amount
paid in gross income under section 61
(determined without regard to an exclu-
sion or exemption from gross income
under the Internal Revenue Code).
Thus, a nominee, agent, custodian, or
any person acting in a similar capacity
is not the beneficial owner. In the case
of a scholarship, the student receiving
the scholarship is the beneficial owner
of that scholarship.
( i i )S p e c i a l r u l e s f o r c e r t a i n
entities—(A) General rule. The benefi-
cial owners of income paid to a
partnership are those persons that,
under U.S. tax principles, are the
taxpayers with respect to that income
in their separate or individual capaci-
ties. For example, a partnership (first
tier) that is a partner in another partner-
ship (second tier) is not the beneficial
owner of income paid to the second tier
partnership since the first tier part-
nership is not liable for income tax
under U.S. tax principles. See, how-
ever, §1.1441–5(a) for applicable with-
holding procedures for payments to a
d o m e s t i c p a r t n e r s h i p . S e e a l s o
§1.1441–5(b)(2) for applicable with-
holding procedures for payments to a
foreign partnership where one of the
partners (at any level in the chain of
tiers) is a domestic partnership.
(B)Special rules when an income
tax treaty applies. For purposes of
claiming a reduction in the rate of
withholding on income paid to a
foreign entity based on an income tax
treaty between the United States and a
foreign country, the tax principles in
effect under the laws of that foreign
country shall apply to determine
whether the entity or the persons
holding an interest in that entity are
required to include the amounts in
income and, therefore, whether, under
the principles of this paragraph (c)(6),
the entity or the interest holders in the
entity are the beneficial owners of the
income. See §1.1441–6(b)(4)(iii) per-
mitting a withholding agent to treat, at
its option, payments made to a single
foreign entity as beneficially owned in
part by the entity and, in part, by any
one or more persons holding an interest
in the entity. The possibility of dual
treatment may also occur if a reduced
rate of tax is claimed under the Internal
Revenue Code for certain types of in-
come and under a U.S. income tax
treaty for other types of income or if
reduced rates are claimed under dif-
ferent tax treaties. For purposes of this
paragraph (c)(6)(ii)(B), the term foreign
entity does not include a trust or an
estate. See §1.1441–6(b)(4) for proce-
dures governing claims of benefits
under an income tax treaty.
(C)Trusts. The provisions of para-
graphs (c)(6)(i) and (c)(6)(ii)(A) of this
section shall not apply to a trust,
whether domestic or foreign. The bene-
ficial owner of income paid to a trust
shall be determined under the provi-
sions of §1.1441–3(f) and (g), as in
effect on the date preceding the date on
which this document is published as a
final regulation in the Federal Register.
(7)Chapter 3 of the Internal Reve-
nue Code. For purposes of the regula-
tions under sections 1441, 1442, and
1443, any reference to chapter 3 of the
Internal Revenue Code shall not in-
clude references to sections 1445 and
1446, unless the context indicates
otherwise.
(d)Claim of U.S. status by payee or
beneficial owner—(1) In general. Pay-
ments made to a U.S. person are not
subject to the withholding of tax under
section 1441, absent actual knowledge
or reason to know that the U.S. person
may be acting as an agent for a foreign
person. See paragraph (b) of this sec-
tion. Absent actual knowledge or rea-
son to know otherwise, a withholding

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agent may apply the provisions of this
paragraph (d) to a payment of income
otherwise subject to withholding to
determine whether to treat the payment
as made to a U.S. person. See para-
graph (f) of this section for applicable
presumptions if the withholding agent
cannot associate the payment with the
required documentation prior to the
time of payment.
(2)Payments to a payee that is a
U.S. person—(i) Reportable payments.
If a reportable payment (as defined in
section 3406(b)) is made to a payee
that is not an exempt recipient (as
defined under the applicable informa-
tion reporting provisions of chapter 61
of the Internal Revenue Code), the
withholding agent may treat the pay-
ment as made to a U.S. person if the
payee complies with the procedures
described in §§31.3406(d)–1 through
31.3406(d)–5 of this chapter (including
requiring a payee to furnish its tax-
payer identifying number) and the
withholding agent meets all the require-
ments described in §31.3406(h)–3(e) of
this chapter regarding reliance by a
payor on a Form W–9).
(ii)Payments to exempt recipients
and certain other payments. If a
reportable payment is made to a payee
that is an exempt recipient (as defined
under the applicable information report-
ing provisions of chapter 61 of the
Internal Revenue Code) or is a scholar-
ship, grant, pension, or annuity, a
withholding agent may treat the pay-
ment as made to a U.S. person if the
payee provides a certificate of U.S.
status. For purposes of this paragraph
(d)(2)(ii), a certificate of U.S. status is
a Form W–9 (or such other form as the
Internal Revenue Service may pre-
scribe) that is signed under penalties of
perjury by the payee and contains all
required information. For purposes of
this paragraph (d)(2)(ii), required infor-
mation consists of the payee’s name,
permanent residence address, and tax-
payer identifying number. The proce-
dures described in §31.3406(h)–3(a) of
this chapter shall apply to payments to
joint payees. A withholding agent that
receives a Form W–9 in order to satisfy
this paragraph (d)(2)(ii) must retain the
form in accordance with the provisions
of paragraph (e)(4)(iii) of this section
relating to the retention of withholding
certificates. The rules of this paragraph
(d)(2)(ii) are only intended to provide a
method by which a withholding agent
may determine that a payee is not a
foreign person and do not otherwise
impose a requirement that documenta-
tion be furnished by an exempt recip-
ient or for payments subject to this
paragraph (d)(2)(ii).
(3)Payments to a foreign person
acting for a U.S. payee. Absent actual
knowledge or reason to know other-
wise, for purposes of chapter 3 of the
Internal Revenue Code, section 3406,
and chapter 61 of the Internal Revenue
Code, a withholding agent may treat a
payment to a foreign person as a pay-
ment made to a payee that is a U.S.
person if it receives an intermediary
withholding certificate described in
paragraph (e)(3)(iv) of this section
regarding the foreign person to which
is attached the applicable certification
described in paragraph (d)(2) of this
section concerning the U.S. payee on
whose behalf the foreign person is
receiving the payment. See paragraph
(e)(5) of this section for applicable
procedures in the case of a payment to
a foreign person acting as a qualified
intermediary. See also, §1.1441–5(b)(1)
for applicable procedures in the case of
a payment to a foreign partnership that
is not a qualified intermediary.
(e)Beneficial owner’s claim of for-
eign status—(1) Withholding agent’s
reliance. Absent actual knowledge or
reason to know otherwise, a withhold-
ing agent may rely on a claim that the
beneficial owner of income is a foreign
person, if, prior to the payment, it
complies with the requirements de-
scribed in paragraphs (e)(1)(i), (ii), and
(iii) of this section. For this purpose, a
withholding agent acting through an
authorized foreign agent is deemed to
comply with such requirements to the
extent its authorized foreign agent so
complies. See §1.1441–7(c)(2) for the
description of an authorized foreign
agent. In the case of a payment to a
person other than an individual, a
withholding agent may rely on the
claim of entity classification made on
the basis of the certification (or docu-
mentation, if applicable) furnished to
the withholding agent, unless it has
actual knowledge or reason to know
that the classification claimed is
incorrect.
(i)The withholding agent holds a
beneficial owner withholding certificate
described in paragraph (e)(2)(i) of this
section or an intermediary withholding
certificate described in paragraph
(e)(3)(i) of this section.
(ii)The withholding agent complies
with the electronic confirmation proce-
dures described in paragraph (e)(4)(v)
of this section, if required.
(iii)The withholding agent has not
been notified by the Internal Revenue
Service that any of the information on
the withholding certificate is incorrect
or unreliable.
(2)Beneficial owner withholding
certificate—(i) In general. A beneficial
owner withholding certificate is a state-
ment by which the beneficial owner of
the income paid represents that it is a
foreign person and, if applicable,
claims a reduced rate of withholding
under section 1441. A separate with-
holding certificate must be submitted to
each withholding agent. If the benefi-
cial owner receives more than one type
of income from a single payor, the
beneficial owner may submit one with-
holding certificate to the single payor
for the different types of income. See
paragraph (c)(6)(ii)(B) of this section
and §1.1441–6(b)(4)(i) for the deter-
mination of beneficial owner when a
benefit is claimed under an income tax
treaty. A beneficial owner of an inter-
est in a mutual fund that has a common
investment advisor or common princi-
pal underwriter with other mutual funds
(within the same family of funds) may,
in the discretion of the mutual fund,
provide one withholding certificate for
shares acquired or owned in any of the
funds. See §31.3406(h)–3(a)(2) of this
chapter.
(ii)Requirements for validity of cer-
tificate. A beneficial owner withholding
certificate is valid only if it is provided
on a Form W–8 (or, in the case of
personal services income described in
§1.1441–4(b), a Form 8233), its valid-
ity period has not expired, it is signed
under penalties of perjury by the
beneficial owner and it contains all of
the information described in this para-
graph (e)(2)(ii). The required informa-
tion is the name, permanent residence
address, and taxpayer identifying num-
ber (TIN) of the beneficial owner (if
required), the basis for the reduced rate
of withholding claimed, if applicable,
(including any applicable tax treaty
provisions), and any other information
as may be required (in addition to, or
in lieu of, the information described in
this paragraph (e)(2)(ii)) by the regula-
tions under section 1441 or by a form
or accompanying instructions. A per-
manent residence address is the address
in the country where the person claims
to be a resident for purposes of that
country’s income tax. The address of a

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financial institution with which the
beneficial owner maintains an account,
a post office box, or an address used
solely for mailing purposes is not a
residence address for this purpose. If
the beneficial owner is an individual
who does not to have a tax residence in
any country, the address is where the
beneficial owner normally resides. If
the beneficial owner is a corporation,
then the address is where the corpora-
tion maintains its principal office in its
country of incorporation. Instead of the
Form W–8 (or the Form 8233, if appli-
cable), the withholding agent may rely
on an acceptable substitute form or
such other form as the Internal Reve-
nue Service may prescribe. See para-
graph (g)(2) of this section for con-
tinued validity of certificates during the
transition period. See paragraph (e)(4)-
(vii) of this section for circumstances
in which a taxpayer identifying number
is required on a beneficial owner
withholding certificate.
(3)Intermediary withholding certi-
ficate—(i) In general. An intermediary
withholding certificate is a statement
by which a foreign payee represents
that it is not the beneficial owner of the
income paid or is a statement furnished
by a partnership for its partners. It is
used either to make representations
regarding the status of beneficial
owners of the income or to transmit
appropriate documentation to the with-
holding agent. This paragraph (e)(3)
describes the requirements for the
validity of an intermediary withholding
certificate issued either by a qualified
intermediary, by a foreign partnership
that is not a qualified intermediary, or
by any other person that is neither a
qualified intermediary nor a foreign
partnership.
(ii)Intermediary withholding certifi-
cate from a qualified intermediary. In
the case of an intermediary withholding
certificate issued by a qualified inter-
mediary (described in paragraph (e)(5)-
(ii) of this section), the certificate is
valid only if it is furnished on a Form
W–8 (or an acceptable substitute form
or such other form as the Internal
Revenue Service may prescribe), it is
signed under penalties of perjury by an
officer or partner of the qualified
intermediary with authority to sign for
the intermediary, and it contains the
information and certifications described
in this paragraph (e)(3)(ii).
(A)The name, permanent residence
address (as described in paragraph
(e)(2)(ii) of this section), and the
employer identification number of the
qualified intermediary.
(B)A certification that the issuer is
a qualified intermediary.
(C)A certification that the issuer
has obtained, as required in the with-
holding agreement with the Internal
Revenue Service, the appropriate cer-
tificates (such as Forms W–8 or W–9)
or any other documentation regarding
its account holders or partners.
(D)A statement whether the quali-
fied intermediary is assuming primary
withholding responsibility for the
amounts to which the certificate relates.
(E)If the information is not assum-
ing primary withholding responsibility,
the information and certificates re-
quired under paragraph (e)(5)(iv)(B) of
this section regarding the basis for any
reduced rate of withholding tax
claimed.
(F)Any other information or cer-
tification as may be required (in
addition to, or in lieu of, the informa-
tion and certifications described in this
paragraph (e)(3)(ii)) by the form or
accompanying instructions.
(iii)Intermediary withholding certifi-
cate from a foreign partnership. In the
case of an intermediary withholding
certificate issued under the provisions
of §1.1441–5(b) by a foreign part-
nership that is not a qualified inter-
mediary, the certificate is valid only if
it is furnished on a Form W–8 (or an
acceptable substitute form or such other
form as the Internal Revenue Service
may prescribe), it is signed under
penalties of perjury by a partner with
authority to sign for the partnership,
and it contains the information and
certifications described in this para-
graph (e)(3)(iii).
(A)The name, permanent residence
address (as described in paragraph
(e)(2)(ii) of this section), and the
employer identification number of the
partnership.
(B)The basis for the reduced rate of
withholding claimed, expressed in rela-
tion to the distributive share of each
partner to which the certificate relates.
(C)The appropriate withholding cer-
tificates for the partners as required
under §1.1441–5(b)(1) (except for an
intermediary withholding certificate
furnished in order to claim a reduced
rate for income effectively connected
with the conduct of a trade or business
in the United States).
(D)A statement that the income is
effectively connected with the conduct
of a trade or business in the United
States, if applicable.
(E)Any other information or cer-
tification as may be required (in
addition to, or in lieu of, the informa-
tion described in this paragraph
(e)(3)(iii)) by the form or accompany-
ing instructions.
(iv)Intermediary withholding certifi-
cate from an agent, nominee, repre-
sentative, etc. In the case of an
intermediary withholding certificate
issued by a person that is not a
qualified intermediary and is not acting
for its own account, the certificate is
valid if it is described in this paragraph
(e)(3)(iv). In addition, a certificate
furnished to qualify interest as portfolio
interest for purposes of sections 871(h)
and 881(c) or to qualify dividends on
publicly traded stock (as defined in
§1.1441–6(b)(2)) is valid if it is de-
scribed in §1.871–14(c)(2)(iii). A cer-
tificate is described in this paragraph
(e)(3)(iv) if it is furnished on a Form
W–8 (or an acceptable substitute form,
or such other form as the Internal
Revenue Service may prescribe), it is
signed under penalties of perjury by a
person authorized to sign for the issuer
of the certificate, and it contains the
information and certifications described
in this paragraph (e)(3)(iv).
(A)The name, permanent resident
address (as described in paragraph
(e)(2)(ii) of this section) and the
taxpayer identifying number of the
issuer of the certificate.
(B)A certification that the issuer is
not acting for its own account and is
using the certificate as a form to
transmit beneficial owner documenta-
tion for the payment to which the
certificate relates (or other applicable
documentation concerning the person
for whom the intermediary is receiving
the payment.
(C)If furnishing an intermediary
certificate to transmit more than one
withholding certificate, the certificate
may indicate the basis for the reduced
rate of withholding claimed, based
u p o n t h e a t t a c h e d w i t h h o l d i n g
certificates.
(D)Any other information or cer-
tification as may be required (in
addition to, or in lieu of the informa-
tion and certification described in this
paragraph (e)(3)(iv)) by the form or
accompanying instructions.

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(4)Applicable rules—(i) Joint
owners. In the case of a payment to
joint owners, a withholding certificate
must be provided by each owner claim-
ing to be a foreign person.
(ii)Period of validity—(A) Three
year period. Except as otherwise
provided in paragraph (e)(4)(ii)(B) of
this section, a beneficial owner with-
holding certificate or an intermediary
withholding certificate shall remain
valid for three years or until such time
as a change in circumstances makes
any information on the certificate
incorrect.
(B)Validity period where TIN pro-
vided. A withholding certificate fur-
nished with a taxpayer identifying
number shall remain valid until such
time as a change in circumstances
makes any information on the certifi-
cate incorrect but only if the income
for which such certificate is furnished
is required to be reported under
§1.1461–1(c)(2)(ii) or the taxpayer
identifying number furnished on the
certificate is reported to the Internal
Revenue Service under the procedures
described in §1.1461–1(d).
(C)Withholding certificate for effec-
tively connected income. Notwithstand-
ing paragraph (e)(4)(ii)(B) of this sec-
tion, the period of validity of a
withholding certificate furnished to a
withholding agent to claim a reduced
rate of tax for income that is effec-
tively connected with the conduct of a
trade or business within the United
States shall be limited to three years.
(D)Computation of three-year
period. The three-year validity period
shall start from the date that the
certificate is signed until the last day of
the third succeeding calendar year. For
example, a certificate signed on Sep-
tember 30, 1998 remains valid through
December 31, 2001.
(E)Change in circumstances. If a
change in circumstances makes any
information on the certificate incorrect,
then the issuer of the certificate must
inform the withholding agent within 30
days of the change and issue a new
certificate. If a beneficial owner with-
holding certificate is used to claim
foreign status only (and not, also,
residence in a particular foreign coun-
try for purposes of an income tax
treaty), a change of address is a change
in circumstances for purposes of this
paragraph (e)(4)(ii)(E) only if it
changes to an address in the United
States. Further, a change of address
within a foreign country is not a
change in circumstances for purposes
of this paragraph (e)(4)(ii)(E). A with-
holding agent may require a new
certificate at any time prior to a
payment, even though the withholding
agent has no actual knowledge or
reason to know that any information
stated on the certificate has changed.
(iii)Retention of withholding certifi-
cate. A withholding agent must retain
each withholding certificate for as long
as it may be relevant to the determina-
tion of the withholding agent’s tax
liability under section 1461 and
§1.1461–1.
(iv)Electronic transmission of infor-
mation. Under procedures issued by the
Internal Revenue Service, a withhold-
ing agent may be permitted to receive
in electronic form the information
required to be included on a withhold-
ing certificate or a certificate of U.S.
status.
(v)Electronic confirmation of infor-
mation on withholding certificate. Un-
der procedures issued by the Internal
Revenue Service, a withholding agent
may be required to use an electronic
on-line system to confirm with the
Internal Revenue Service information
concerning any taxpayer identifying
number stated on a withholding certifi-
cate or a certificate of U.S. status.
(vi)Acceptable substitute form. For
purposes of the regulations under sec-
tion 1441, 1442, and 1443, the term
acceptable substitute in the case of a
Form W–8 or Form 8233 described in
paragraph (e)(2) or (e)(3) of this
section is a document prepared and
furnished based on the rules set forth in
§31.3406(h)–3(c)(1) of this chapter (re-
lating to substitutes for a Form W–9).
(vii)Requirement of taxpayer identi-
fying number. A taxpayer identifying
number must be stated on a withhold-
ing certificate when required by this
paragraph (e)(4)(vii). A taxpayer identi-
fying number is required to be stated
on a beneficial owner certificate if the
beneficial owner is claiming the benefit
of a reduced rate under an income tax
treaty (other than with respect to
dividends on stock traded on a U.S.
established financial market), an ex-
emption from withholding because in-
come is effectively connected with a
U.S. trade or business, an exemption
under section 871(f) for certain an-
nuities received under qualified plans,
or an exemption based on a foreign
organization’s tax exempt status under
section 501(c) or private foundation
status. In addition, a taxpayer identify-
ing number is required to be stated on
all intermediary withholding certifi-
cates. A taxpayer identifying number is
an IRS individual tax identification
number, an employer identification
number, or a social security number as
d e s c r i b e d i n s e c t i o n 6 1 0 9 a n d
§301.6109–1 of this chapter, or any
other identifier the Commissioner may
designate.
(5)Qualified intermediaries—(i)
General rule. A qualified intermediary,
as defined in paragraph (e)(5)(ii) of this
section, may furnish an intermediary
withholding certificate to a withholding
agent for purposes of certifying on
behalf of beneficial owners, intermedi-
aries (such as agents or nominees
acting for the accounts of others), other
qualified intermediaries or U.S. payees
for the purpose of claiming reduced
rates of withholding tax under section
1441, 1442, or 1443. Such certificate is
in lieu of transmitting withholding
certificates or other required documen-
tation to a withholding agent. While the
qualified intermediary is generally re-
quired to obtain withholding certificates
or other appropriate documentary evi-
dence from beneficial owners or payees
pursuant to its agreement with the
Internal Revenue Service, it is not
required to attach such documentation
to the intermediary withholding
certificate.
(ii)Definition of qualified intermedi-
ary. The term qualified intermediary
means a foreign person that is a party
to a withholding agreement with the
Internal Revenue Service and that is—
(A)A financial institution (as de-
fined in §1.165–12(c)(1)(iv)) or a clear-
ing organization (as defined in §1.163–
5(c)(2)(i)(D)(8));
(B)A partnership; or
(C)Any other person acceptable to
the Internal Revenue Service.
(iii)Withholding agreement—(A) In
general. The Internal Revenue Service
may, upon request, enter into a with-
holding agreement with a foreign per-
son described in paragraph (e)(5)(ii) of
this section pursuant to such procedures
as the Internal Revenue Service may
prescribe. The withholding agreement
shall include the terms, conditions and
procedures that the Internal Revenue
Service shall deem appropriate to in-
sure the collection of the tax due and
reporting of information under sections
1441, 1461, 3406 and chapter 61 of the
Internal Revenue Code.

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(B)Terms of the withholding agree-
ment. Generally, the agreement must
include provisions dealing with defin-
ing, obtaining, and maintaining appro-
priate certification and documentation
upon which the foreign person may
rely to ascertain the nationality and
residence of beneficial owners and U.S.
payees, reporting account information
to the Internal Revenue Service or
otherwise making the account informa-
tion available to the Internal Revenue
Service, and, if applicable, acting as an
acceptance agent to perform the duties
described in §301.6109–1(d)(3)(iv)(A)
of this chapter (as proposed in project
number INTL–0024–94, published on
June 8, 1995 (60 FR 30211)). In addi-
tion the agreement must specify the
manner in which the Internal Revenue
Service will verify compliance with the
agreement. In appropriate cases, the
Internal Revenue Service may agree to
rely on audits performed by an inter-
mediary’s approved external auditor’s
records (including workpapers of the
auditor and reports prepared by the
auditor indicating the methodology
employed to verify the entity’s com-
pliance with the agreement). For this
purpose, the agreement shall specify
which auditor or class of auditors is
approved. An external auditor may not
be approved unless it is subject to
regulatory supervision under the laws
of the country in which a significant
part of the intermediary activities under
the agreement are expected to occur, its
internal procedures require it to verify
that the intermediary complies with the
terms of the withholding agreement and
to report non-compliance findings un-
der the agreement in the same manner
as it is required to report other findings
of non-compliance with applicable lo-
cal laws and regulatory requirements,
and the auditor’s relevant records (i.e.,
workpapers and reports) are available
to the Internal Revenue Service. The
agreement must include provisions for
the assessment and collection of tax in
the event that failure to comply with
the terms of the agreement result in the
failure by the withholding agent or the
qualified intermediary to withhold and
deposit the required amount of tax.
Further, the agreement shall provide
that a qualified intermediary that with-
holds any amount of tax must make
deposits of the tax as required under
§1.1461–1(a). The Internal Revenue
Service may require the posting of a
bond conforming to the requirements of
§301.7101–1 of this chapter as to form
of bond or surety required. The agree-
ment shall specify the scope of the
agreement in the case of a foreign
person with branches or relevant inter-
mediary activities in more than one
country. To determine the terms of any
particular withholding agreement, the
Internal Revenue Service will consider
appropriate factors including whether
or not the foreign person agrees to
assume primary responsibility as a
withholding agent, the type of local
‘‘know-your-customer’’ laws and prac-
tices to which it is subject, the extent
and nature of supervisory and regula-
tory control exercised under the laws of
the foreign country over the foreign
person, the volume of investments in
U.S. securities (determined in dollar
amounts and number of account
holders), and financial condition of the
foreign person.
(iv)Assignment of primary withhold-
ing responsibility—(A) In general. A
partnership that is a qualified inter-
mediary acting for its own account
must assume primary withholding re-
sponsibility. Any other qualified inter-
mediary may assume primary withhold-
ing responsibility only if it is permitted
to do so under its agreement with the
Internal Revenue Service. A withhold-
ing agent and a qualified intermediary
may arrange on who of the withholding
agent or the qualified intermediary
shall have primary responsibility for
any amount required to be withheld
under this section and section 3406 for
any one or more classes of beneficial
owners or payees and for any or more
types of income expected to be paid to
the intermediary. In a relationship
between a withholding agent and a
qualified intermediary, the qualified
intermediary may agree to assume
primary withholding responsibility for
some types of income and not others.
However, unless otherwise specified in
the agreement, primary withholding
responsibility for a type of income
must be assumed for all beneficial
owners and payees of that income or
for none of them.
(B)Applicable procedures when a
qualified intermediary does not assume
primary withholding responsibility.
When a qualified intermediary does not
assume primary withholding respon-
sibility, the intermediary withholding
certificate must contain the information
described in this paragraph (e)(5)(iv)-
(B) or in any agreement between the
qualified intermediary and the Service.
The certificate must separately identify
the assets that are associated with each
U.S. payee to which the certificate
relates and that generate the type of
income described in §1.1441–2(a) (i.e.,
income that would be subject to with-
holding if paid to a foreign person).
The qualified intermediary must furnish
a Form W–9 for each U.S. payee that
is not an exempt recipient and the
name and address of each U.S. payee
that is an exempt recipient. The inter-
mediary withholding certificate must
also separately identify the assets asso-
ciated with non-U.S. payees to which
the certificate relates and the applicable
withholding tax rate or rates. If dif-
ferent withholding tax rates apply, the
intermediary withholding certificate
must indicate the applicable rate for
each class of non-U.S. payees to which
different withholding rates apply and
the assets associated with each class.
For payments that the intermediary
withholding certificate states are made
to U.S. payees, a withholding agent
dealing with a qualified intermediary
that has not assumed primary withhold-
ing responsibility must comply with
applicable reporting requirements under
chapter 61 of the Internal Revenue
Code in the same manner as if it had
received a Form W–9 (or acceptable
substitute form) directly from the U.S.
payee. The withholding agent must also
comply with the return requirements
under section 1461 and §1.1461–
1(b)(2)(ii) and (c)(4)(ii) for payments
made to non-U.S. payees.
(C)Applicable procedures when
qualified intermediary assumes primary
withholding responsibility. A withhold-
ing agent relying on an intermediary
withholding certificate from a qualified
intermediary representing that the
qualified intermediary assumes primary
withholding responsibility as permitted
under its agreement with the Internal
Revenue Service is relieved from the
obligation to withhold on payments
made to the intermediary. The with-
holding agent must comply with the
return requirements under section 1461
and §1.1461–1(b)(2)(ii) and (c)(4)(ii)
for payments made to the qualified
intermediary.
(v)Special rules for qualified inter-
mediaries that are foreign partnerships.
A foreign partnership that is a qualified
intermediary shall be a withholding
agent with respect to its partner’s
distributive share of income subject to
withholding that is paid to the part-

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nership. Therefore, it shall withhold
under the same procedures and at the
same time as is prescribed for with-
holding by a domestic partnership. See
§1.1441–5(a)(2) for withholding proce-
dures applicable to domestic part-
nerships. In addition, the partnership
shall not be relieved from its obligation
to make a return on Form 1065 as re-
quired under section 6031 and the
regulations under that section and to
furnish the statements required under
section 6031(b) and the regulations
under that section.
(f)Presumptions—(1) In general—
(i) Reliance. Absent actual knowledge
or reason to know otherwise, a with-
holding agent or a payor described in
§31.3406(a)–2 of this chapter may rely
on the presumptions of this paragraph
(f) to determine whether to treat a
beneficial owner or a payee as a U.S.
or a foreign person when, before
making a payment of income subject to
withholding, or a payment subject to
reporting under chapter 61 of the
Internal Revenue Code, the withholding
agent or payor cannot associate the
payment with the required documenta-
tion. When applying the provisions of
this section, any presumption of foreign
status pursuant to this paragraph (f)
shall have effect only for purposes of
applying the provisions of paragraph
(b) of this section (regarding the rules
of withholding) and may not be relied
upon for purposes of granting a re-
duced rate of withholding under the
Internal Revenue Code (e.g. section
1441(c)(9) or (c)(10)) or under an
income tax treaty.
(ii)Required documentation. For
purposes of this paragraph (f), the term
required documentation means the ap-
plicable documentation that is required
to be furnished in connection with the
payment under this section, under
§1.871–14(c)(2), or under chapter 61 of
the Internal Revenue Code. A with-
holding agent or payor is not able to
associate a payment with required
documentation if, for that payment, it
lacks documentation, the documenta-
tion it holds lacks information, or the
withholding agent or payor knows or
has reason to know that information
associated with the required documen-
tation is incorrect or unreliable. For
purposes of this paragraph (f)(1), a
withholding agent or payor has reason
to know that information is incorrect or
unreliable if the withholding agent or
payor would have reason to know
under the rules of §1.1441–7(b)(2) or
cannot reasonably rely on a Form W–9
(or an acceptable substitute) under
§31.3406(h)–3(e) of this chapter. For
purposes of this paragraph (f)(1), a
Form W–9 (or an acceptable substitute)
must contain the information described
in §31.3406(h)–3(e)(2)(i) through (iv)
of this chapter in order for a payor to
reasonably rely on the Form W–9. In
the case of other documentation, the
required information shall include only
the name, permanent residence address,
taxpayer identifying number (when re-
quired), and signature under penalties
of perjury (when required).
(2)Reportable payments to non-
exempt recipients—(i) In general. Ex-
cept as otherwise provided in para-
graphs (f)(2)(ii) and (f)(4) of this
section, a reportable payment (as de-
fined in paragraph (f)(6) of this sec-
tion) made to a payee who is an
individual or other non-exempt recip-
ient is presumed made to a U.S. payee
for purposes of chapter 61 of the
Internal Revenue Code, section 3406,
and this section if, before payment, the
withholding agent or payor cannot
associate the payment with the required
documentation (as determined under
paragraph (f)(1)(i) of this section). In
such a case, the withholding agent or
payor must treat the payment as a
payment that may be subject to report-
ing under chapter 61 of the Internal
Revenue Code and the regulations
under that chapter and to backup
withholding under section 3406 and the
regulations under that section.
(ii)Special grace period for certain
reportable payments in the case of
indicia of a foreign payee—(A) Gen-
eral rule. This paragraph (f)(2)(ii)(A)
applies to payments of dividends, inter-
est, original issue discount, broker
proceeds described in §1.6045–1(d)(5),
and exchanges of personal property or
services through barter exchanges de-
scribed in §1.6045–1(e)(2). A withhold-
ing agent or payor may treat the payee
as a beneficial owner that is a foreign
person for the grace period described in
this paragraph (f)(2)(ii)(A) if, at the
time a payment is first credited to an
account, the withholding agent or payor
has the name and an address in a
foreign country for the account holder
or a facsimile copy or an electronic
transmission of the information con-
tained in a withholding certificate
described in paragraph (e)(2) or (e)(3)
of this section. The grace period is 90
days from the date that the withholding
agent or payor first credits the account
or, if shorter, until the end of the
calendar year. If this paragraph (f)(2)-
(ii)(A) applies, the withholding agent
may then treat the payee as a beneficial
owner that is a foreign person and is,
therefore, required to withhold under
section 1441 on the basis of this
presumption from the time that the
amounts are credited to the account.
(B)Additional withholding in the
event of payments or withdrawals. If, at
any time before provision or correction
of the required documentation within
the grace period specified in paragraph
(f)(2)(ii)(A) of this section, the with-
holding agent loses control over any
part or all of the amounts in an account
described in paragraph (f)(2)(ii)(A) of
this section (such as by making an
actual payment from the account or
allowing withdrawal of any part or all
of the amounts in the account, other
than for purposes of withholding an
amount of tax), then the withholding
agent or payor must treat the payee as
a U.S. person for all amounts credited
to the account during the grace period.
Accordingly, the payor must withhold
to the extent required under section
3406 on all reportable payments made
to the account during the period to
which the grace period applies and
thereafter. The amount of backup with-
holding is equal to 31 percent of the
reportable payments reduced by any
amount previously withheld from the
amounts credited to the account.
(C)Application of withholding upon
expiration of grace period. If, upon the
termination of the grace period de-
scribed under paragraph (f)(2)(ii)(A) of
this section, the required documentation
has not been furnished or corrected, the
payee is then presumed to be a U.S.
person for purposes of section 3406
and chapter 61 of the Internal Revenue
Code. Accordingly, the payor must
withhold to the extent required under
section 3406 on all reportable payments
credited to the account during the grace
period and thereafter (until appropriate
documentation has been furnished or
corrected). Any amount withheld from
the payments subject to the grace
period may be credited toward any
amount of backup withholding due
under section 3406. If the required
documentation is furnished or corrected
on or before the expiration of the grace
period described in paragraph (f)(2)-
(ii)(A) of this section and establishes

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that the beneficial owner is a foreign
person, then any amount withheld on
any payment made during the grace
period will be treated as having been
withheld under section 1441. To the
extent such amount exceeds the amount
of tax ultimately determined to be
owed under section 1441, the excess
shall be treated as an amount of
overwithholding subject to adjustment
under §1.1461–2(a), or refund or credit
under §1.1464–1. If, on the other hand,
U.S. status is established by required
documentation on or before expiration
of the grace period, then any amount
withheld from the payments made
during the grace period may be cred-
ited towards any amount of backup
withholding due under section 3406. To
the extent such tax exceeds the amount
required to be withheld under section
3406, the excess shall be treated as
erroneously withheld from the payee
and shall be subject to adjustments as
provided in §31.6413(a)–3 of this
chapter.
(iii)Joint owners or payees. A with-
holding agent or payor may presume
that a payment made to joint owners or
payees for whom it cannot associate
the required documentation for all
payees is made to U.S. individuals. For
purposes of applying this paragraph
(f)(2)(iii), the grace period rules in
paragraph (f)(2)(ii)(A) of this section
shall apply only if each payee qualifies
for it. In that case, the rules of
paragraph (f)(2)(ii)(B) of this section
would apply when any one of the joint
account holders receives a payment,
makes a withdrawal, or reinvests any
portion of the funds in the account that
are subject to the grace period.
(iv)Special rules for exempt recip-
ients. If the payee is an exempt
recipient described in §1.6049–4(c)-
(1)(ii) and the withholding agent or
payor has actual knowledge of the
payee’s employer identification num-
ber, then the withholding agent or
payor may presume that the payee is a
foreign person if the employer identi-
fication number begins with the two
digits ‘‘98.’’ The withholding agent or
payor may also presume that the payee
is foreign if the withholding agent’s or
payor’s communications with the payee
are mailed to an address in a foreign
country, or if the payment is made
outside the United States (as defined in
§1.6049–5(e)). In other cases, the with-
holding agent or payor may presume
that the exempt recipient is a U.S.
person and, therefore, subject to section
3406 and chapter 61 of the Internal
Revenue Code and the regulations
under those provisions. If a withhold-
ing agent or payor treats a payee as a
foreign person pursuant to the pre-
sumption of this paragraph (f)(2)(iv), it
must treat the payee as the beneficial
owner and apply the provisions of
section 1441, §1.871–14, and chapter
61 of the Internal Revenue Code ac-
cordingly. If the withholding agent
treats the payee as a foreign person, it
is subject to the return requirements of
§1.1461–1(b) and (c). The presumption
of this paragraph (f)(2)(iv) may be
rebutted by providing the required
documentation to the withholding agent
or payor.
(3)Special rules for scholarships,
grants, pensions, annuities, etc.—(i)
Scholarships and grants. A payment
representing scholarship or fellowship
grant income (as defined in section
117) is presumed made to a U.S.
person if the withholding agent or
payor has a record of the payee’s U.S.
visa status in its records. In that case,
the withholding agent or payor has
reason to know that such individual is
a foreign person and, therefore, the
presumption of this paragraph (f)(3)(i)
shall not apply.
(ii)Pensions, annuities, etc.. A with-
holding agent or payor may presume
that a payment from a trust described
in section 401(a), an annuity plan
described in section 401(a), an annuity
plan described in section 403(a), or a
payment with respect to any annuity,
custodial account, or retirement income
account described in section 403(b) is
made to a U.S. or foreign person under
the rules of this paragraph (f)(3)(ii).
(A)Such payment is presumed made
to a U.S. person, if the withholding
agent or payor has a Social Security
number for the payee and a mailing
address as described in this paragraph
(f)(3)(ii)(A). A mailing address is an
address used for purposes of informa-
tion reporting or otherwise commu-
nicating with the payee that is an
address in the United States or in
certain foreign countries with which the
United States has an income tax treaty.
For this purpose, a income tax treaty
must provide that the payee, if an
individual resident in that country,
would be entitled to an exemption from
U.S. tax on amounts described in this
paragraph (f)(3)(ii).
(B)Such payment is presumed made
to a foreign person in all cases not
described in paragraph (f)(3)(ii)(A) of
this section.
(4)Special rules for pass-through
entities—(i) Payments to partnerships.
In the case of a payment to a partner-
ship, the presumptions of this para-
graph (f)(4)(i) shall apply to determine
whether to treat the partnership as a
domestic or foreign partnership. This
determination must be made before
determining who are the payees under
paragraph (c)(3) of this section. If the
withholding agent or payor has actual
k n o w l e d g e o f t h e p a r t n e r s h i p ’ s
employer identification number, then
the withholding agent or payor may
presume that the partnership is a
foreign partnership if the employer
identification number begins with the
two digits ‘‘98.’’ The withholding
agent or payor may also presume that
the partnership is foreign if the with-
holding agent’s or payor’s communica-
tions with the partnership are mailed to
an address in a foreign country, or if
the payment is made outside the United
States (as defined in §1.6049–5(e)). In
all other cases, the withholding agent
or payor may presume that the part-
nership is domestic. The presumptions
in this paragraph (f)(4)(i) may be
rebutted by providing the required
documentation to the withholding agent
or payor.
(ii)Payments to a foreign part-
nership. A withholding agent or payor
that makes a reportable payment to a
partnership that it treats as a foreign
partnership may presume that a partner
is a U.S. payee that is not an exempt
recipient if, before payment, the with-
holding agent cannot associate the
payment with the required documenta-
tion for the partner. See paragraph
(c)(3)(ii) of this section treating part-
ners of a foreign partnership as payees.
In such case, the withholding agent or
payor must treat the portion of the
payment allocable to the partner as
made to a U.S. payee who is not an
exempt recipient. Thus, the payment
may be subject to reporting under
chapter 61 of the Internal Revenue
Code and the regulations under that
chapter and to backup withholding
under section 3406 and the regulations
under that section. The portion of a
payment allocable to a partner shall be
determined based on the distributive
shares of the partnership income alloca-
ble to each partner.
(iii)Partners’ distributive shares—
(A) Domestic partnership. For purposes

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of this paragraph (f)(4)(iii)(A), a do-
mestic partnership may presume that a
partner is a U.S. payee that is not an
exempt recipient if, at the time it is
required to withhold on the amount, the
partnership cannot associate the pay-
ment with the required documentation
for that partner and the amount relates
to a reportable payment made to the
partnership.
(B)Foreign partnership. For pur-
poses of this paragraph (f)(4)(iii)(B), a
foreign partnership that is a qualified
intermediary may treat a partner as a
foreign payee if, at the time it is
required to withhold on the amount, it
cannot associate the amount with the
required documentation for that partner.
(5)Failure to act in accordance
with presumptions. A withholding agent
that, contrary to the presumptions in
this paragraph (f), grants a claim of
reduced rate of withholding under
section 1441 on income subject to
withholding will be liable under section
1461 for the tax required to be with-
held under section 1441, without the
benefit of a reduced rate unless the
withholding agent can demonstrate to
the satisfaction of the District Director
or the Assistant Commissioner (Interna-
tional) that the proper amount of tax, if
any, was in fact paid to the Internal
Revenue Service. Proof of payment of
tax may be established on the basis of
a Form 4669 (or such other form as the
Internal Revenue Service may pre-
scribe), establishing the amount of tax,
if any, actually paid by the beneficial
owner on the income. Proof that a re-
duced rate of withholding was appro-
priate may also be established on the
basis of the required documentation
described in paragraph (f)(1)(ii) of this
section. However, if the required docu-
mentation was not received by the
withholding agent before the time the
payment was made or within the grace
period specified in paragraph (f)(2)-
(ii)(A) of this section, then the Com-
missioner, or his or her delegate, may
require additional proof if it determines
that the delays in obtaining the required
documentation affect its reliability. The
withholding agent will be liable for
interest under section 6601 regardless
of whether the underlying tax liability
is due. In addition, the withholding
agent may be subject to penalties.
(6)Reportable payment. Solely for
purposes of the presumptions in this
paragraph (f), a reportable payment is
any payment of income subject to
withholding (as defined in §1.1441–
2(a)) or any payment described in
section 3406(b), notwithstanding the
provisions in sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A, 6050N
and the regulations under those sections
that provide exemptions from reporting
based upon the status of the payee as a
foreign person. For example, a payment
of interest described in §1.6049–5(b)-
(14) as a non-reportable payment if
paid to a foreign person is treated as a
reportable payment for purposes of this
paragraph (f). Accordingly, the with-
holding agent or payor must determine
under the presumptions described in
this paragraph (f) whether to treat the
beneficial owner or payee as a foreign
or U.S. person. See sections 6041
through 6049 and sections 6050A and
6050N and the regulations under those
sections for reporting requirements for
amounts treated as reportable payments
for purposes of this paragraph (f).
(7)Adjustment, refund, or credit of
overwithheld tax. If, as a result of the
presumption rules of paragraph (f) of
this section, the amount withheld under
section 1441 is greater than the tax
due, adjustments may be made in ac-
cordance with the procedures described
in §1.1461–2(a). Alternatively, refunds
or credits may be claimed in accord-
ance with the procedures described in
§1.1464–1, relating to refunds or
credits claimed by the beneficial
owner, or §1.6414–1, relating to re-
funds or credits claimed by the with-
holding agent. If an amount was
withheld under section 3406, see
§31.6413(a)–3(a)(1) of this chapter.
(g)Effective date—(1) In general.
This section applies to payments of in-
come made after December 31, 1997.
(2)Transition rules. For purposes of
paragraph (e)(2)(i) and (d)(2)(ii) of this
section, a withholding agent that holds
a valid Form W–8, 1001, 4224, 1078,
or a statement described in §1.1441–
5(b) (as contained in 26 CFR Part 1,
edition revised April 1, 1995) on the
date that is 60 days after these
regulations are published as final reg-
ulations in the Federal Register may
treat it as a valid withholding certifi-
cate until its validity expires under
applicable provisions as in effect on
April 22, 1996. In addition, the docu-
mentation requirements for dividends
on stock traded on a U.S. established
financial market described in §1.1441–
6(b)(2) shall apply only to accounts
established after the date that is 60
days after these regulations are pub-
lished as final regulations in the
F e d e r a l R e g i s t e r . F o r a c c o u n t s
established on or before that date, the
documentation requirements under this
section shall apply to payments made
after December 31, 1999.
Par. 7. Section 1.1441–2 is revised to
read as follows:
§1.1441–2 Income subject to
withholding.
(a)In general. For purposes of the
regulations under section 1441, the
term income subject to withholding
means items of income from sources
within the United States (not including
items listed in paragraph (d)(1) of this
section) that constitute either fixed or
determinable annual or periodical in-
come described in paragraph (b) of this
section or other income subject to
withholding described in paragraph (c)
of this section. Withholding applies to
the gross amount of the payment made
to a foreign person. See part I (section
861 and following), subchapter N,
chapter 1 of the Internal Revenue
Code, and the regulations under such
part for rules governing the determina-
tion of the source of income. See
section 884(f) and the regulations
thereunder to determine the circum-
stances under which interest paid by a
foreign corporation is U.S. source
income.
(b)Fixed or determinable annual or
periodical income—(1) In general. For
purposes of chapter 3 of the Internal
Revenue Code, fixed or determinable
annual or periodical income is all
income included in gross income under
section 61 (including original issue
discount), except for the items listed in
paragraph (b)(2) of this section.
(2)Exceptions. For purposes of
chapter 3 of the Internal Revenue
Code, the items of income described in
this paragraph (b)(2) are not fixed or
determinable annual or periodical
income—
(i)Gains derived from the sale of
property (including market discount
and option premiums), except for gains
described in paragraph (b)(3) or (c) of
this section;
(ii)Insurance premiums within the
meaning of section 4372 paid to a
foreign insurer or reinsurer;
(iii)Items of U.S. source income
that are excluded from gross income

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under any provision of law without
regard to the identity of the holder,
such as interest excluded from gross
income under section 103(a); and
(iv)Any other income that the Inter-
nal Revenue Service may determine, in
published guidance, is not fixed or
determinable annual or periodical
income.
(3)Original issue discount. Amounts
of original issue discount are fixed or
determinable annual or periodical in-
come. However, based on the authority
of section 1441(c)(8), only the original
issue discount described in this para-
graph (b)(3) may be subject to with-
holding.
(i)Amounts paid by original issuer.
Amounts paid by the original issuer (or
its paying agent) to the beneficial
owner on any obligation issued after
March 31, 1972 and payable more than
6 months from the date of original
issue that represent original issue dis-
count realized by the beneficial owner
upon the retirement of the obligation,
or upon payment by the issuer on the
obligation, to the extent that the
amount is subject to tax under section
871(a)(1)(C) or under section 881(a)-
(3). This paragraph (b)(3)(i) only ap-
plies to original issue discount as
defined in section 1273(a)(1). There-
fore, it does not apply to market
d i s c o u n t a s d e f i n e d i n s e c t i o n
1278(a)(2).
(ii)Amounts paid by related obligor.
Amounts paid by the obligor (or its
paying agent) on obligations issued
after the date that is 60 days after these
regulations are published as final reg-
ulations in the Federal Register and
payable more than 6 months from the
date of original issue representing an
amount of original issue discount if the
obligor is related to the original issuer
(within the meaning of section 163(e)-
(3)), to the extent such accrued amount
is subject to tax under section
871(a)(1)(C)(ii) or under section
881(a)(3)(B).
(iii)Amounts paid in a sale between
related parties. Amounts paid on the
sale or exchange of obligations issued
after the date that is 60 days after these
regulations are published as final reg-
ulations in the Federal Register and
payable more than 6 months from the
date of original issue representing an
amount of original issue discount if the
seller is related to the purchaser within
the meaning of section 163(e)(3), to the
extent such accrued amount is subject
to tax under section 871(a)(1)(C)(i) or
under section 881(a)(3)(A).
(iv)Amounts actually known to be
taxable original issue discount.
Amounts paid on obligations issued
after the date that is 60 days after these
regulations are published as final reg-
ulations in the Federal Register and
payable more than 6 months from the
date of original issue representing an
amount of original issue discount if the
obligor (or the seller in the case of a
sale or exchange of obligations) has
actual knowledge of the amount subject
to tax under section 871(a)(1)(C) or
under section 881(a)(3).
(v)Amounts for which required doc-
umentation is not furnished. Any
amount of original issue discount paid
on obligations issued after the date that
is 60 days after the publication of these
regulations as final regulations in the
Federal Register and payable more than
6 months from the date of original
issue representing an amount that fails
to qualify as portfolio interest under
section 871(h) or 881(c) (because of
the failure to furnish the statement
described in section 871(h)(5) and
§1.871–14(c)(2)), to the extent the
amount is subject to tax under section
871(a)(1)(C)(ii) or under section
881(a)(3)(B). The applicable rate of
withholding tax shall be applied to the
entire amount of stated interest, if any,
and original issue discount on the
obligation as determined on the date of
original issue if the withholding agent
does not know what proportion of the
payment on the obligation represents
taxable income. Adjustments to any
amount of overwithheld tax may be
made in compliance with the proce-
dures described in §1.1461–2(a). Alter-
natively, refunds may be claimed in
compliance with the procedures in
§1.1464–1.
(4)Securities lending transactions.
[Reserved]
(c)Other income subject to with-
holding. Withholding is also required
on the gross amount of the following
items of income:
(1) Gains described in sections
631(b) or (c), relating to treatment of
gain on disposal of timber, coal, or
domestic iron ore with a retained
economic interest.
(2)Gains subject to the 30 percent
tax under section 871(a)(1)(D) or sec-
tion 881(a)(4), relating to contingent
payments received from the sale or
exchange of patents, copyrights, and
similar intangible property.
(d)Items of income not subject to
withholding under section 1441—(1)
Exemptions for which no withholding
certificate or documentation is re-
quired. The items of income described
in this paragraph (d)(1) are not subject
to withholding of tax under section
1441 regardless of the fact that no
withholding certificate or other docu-
mentation has been furnished to
establish foreign or U.S. status.
(i)Portfolio interest paid on bearer
obligations that are described in section
871(h)(2)(A) or 881(c)(2)(A) and
§1.871–14(b). See §1.6049–5(b)(7) re-
garding exemption from reporting un-
der section 6049, and thus, from
backup withholding under section 3406.
(ii)Original issue discount on any
obligation payable less than 6 months
from the date of original issue de-
scribed in section 871(g)(1)(B)(i). See
§1.6049–5(b)(10), (11), and (14) for
exemptions from reporting under sec-
tion 6049, and thus, from backup
withholding under section 3406.
(iii)Any amount of original issue
discount not described in paragraph
(b)(3) of this section. See §1.6049–
5(b)(10) and (11) for exemptions from
reporting under section 6049, and thus,
from backup withholding under section
3406.
(iv)Proceeds from a wager placed
by a nonresident alien individual in the
games of blackjack, baccarat, craps,
roulette, or big-6 wheel.
(2)Exemptions for portfolio interest
and income on bank, etc. deposits re-
quiring a withholding certificate or
documentation—(i) In general. No
withholding is required under sections
1441(c)(9) and (c)(10) on interest and
original issue discount that either
qualifies as portfolio interest on an
obligation in registered form described
in section 871(h)(2)(B) or 881(c)(2)(B)
(including interest on a foreign-targeted
registered obligation described in
§1.871–14(e)) or is paid on deposits
described in section 871(i)(2)(A). A
withholding agent may exempt from
withholding an amount of interest and
original issue discount paid on deposits
described in section 871(i)(2)(A) only
if, prior to the payment, the withhold-
ing agent complies with the procedures
described in §1.871–14(c). The preced-
ing sentence does not apply to amounts
of original issue discount described in
paragraph (d)(1)(ii) of this section or in
§1.6049–5(b)(10) or (11).
(ii)Transition rule. The documenta-
tion requirements for interest on de-

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posits described in section 871(i)(2)(A)
shall apply to payments made after
December 31, 1997 with respect to ac-
counts established after the date that is
60 days after these regulations are
published as final regulations in the
Federal Register. For accounts estab-
lished on or before that date, the
documentation requirements under this
section shall apply to payments made
after December 31, 1999.
(e)Payment—(1) General rule. 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 basis method of accounting. A
payment is considered made whether it
is made directly to the beneficial owner
or paid to another person for the bene-
fit of the beneficial owner (e.g., to the
agent of the beneficial owner). Thus, a
payment of income is considered made
to a beneficial owner if it is paid in
complete or partial satisfaction of the
beneficial owner’s debt to a creditor.
(2)Income allocated under section
482. A payment is considered made to
the extent income subject to withhold-
ing is allocated under section 482.
Further, income arising as a result of a
secondary adjustment made in conjunc-
tion with a reallocation of income
under section 482 from a foreign
person to a related U.S. person is
considered paid to a foreign person
unless the taxpayer to whom the in-
come is reallocated has entered into a
repatriation agreement with the Internal
Revenue Service and the agreement
eliminates the liability for the withhold-
ing tax. For purposes of determining
the liability for withholding tax, the
payment of income is deemed to have
occurred on the dates of the transac-
tions that give rise to the allocation of
income and the secondary adjustments,
if any.
(3)Blocked income. Income is not
considered paid if it is blocked under
executive authority, such as the Presi-
dent’s exercise of emergency power
under the Trading with the Enemy Act,
50 U.S.C. App. 5, or the International
Emergency Economic Powers Act, 50
U.S.C. 1701 et seq. However, on the
date that the blocking restrictions are
removed, the income that was blocked
is considered constructively received by
the beneficial owner (and therefore paid
for purposes of this section) and subject
to withholding under §1.1441–1.
(4)Special rules for dividends. For
purposes of sections 1441 and 6042, in
the case of stock for which the record
date is earlier than the payment date,
dividends are considered paid on the
payment date. In the case of a corpo-
rate reorganization, if a beneficial
owner is required to exchange stock
held in a former corporation for stock
in a new corporation before dividends
that are to be paid with respect to the
stock in the new corporation will be
paid on such stock, the dividend is
considered paid on the date that the
payee or beneficial owner actually
exchanges the stock and receives the
dividend. See §31.3406(a)–4(a)(2) of
this chapter.
(5)Certain interest accrued by a
foreign corporation. For purposes of
sections 1441 and 6049, a foreign
corporation shall be treated as having
made a payment of interest as of the
last day of the taxable year if it has
made an election under §1.884–4(c)(1)
to treat accrued interest as if it were
paid in that taxable year.
(6)Payments other than in U.S.
dollars. For purposes of section 1441, a
payment includes amounts paid in a
medium other than U.S. dollars. See
§1.1441–3(e) for rules regarding the
amount subject to withholding in the
case of such payments.
(f)Effective date. This section ap-
plies to payments of income made after
December 31, 1997.
Par. 8. Section 1.1441–3 is amended
by:
1. Revising the heading of the
section.
2.Revising paragraphs (a) through
(e).
3.Removing paragraph (f).
4.Redesignating paragraph (j) as
paragraph (f).
5.Revising paragraph (g).
6.Removing paragraphs (h) and (i).
7.Removing the OMB parenthetical
and the authority citation at the end of
the section.
The revisions read as follows:
§1.1441–3 Amounts subject to
withholding.
(a)Withholding on gross amount.
Except as otherwise provided in regula-
tions under section 1441, the amount
subject to withholding under §1.1441–1
is the gross amount of income subject
to withholding. The gross amount of
income subject to withholding may not
be reduced by any deductions, except
to the extent that one or more personal
exemption is allowed as provided under
§1.1441–4(b)(6).
(b)Withholding on payments on cer-
tain obligations—(1) Withholding at
time of payment of interest. When
making a payment on an interest-
bearing obligation, a withholding agent
must withhold under §1.1441–1 upon
the gross amount of stated interest
payable on the interest payment date,
regardless of whether the payment
constitutes a return of capital or the
payment of income within the meaning
of section 61. To the extent an amount
was withheld on an amount of capital
rather than interest, adjustments to any
amount of overwithheld tax may be
made under the procedures described in
§1.1461–2(a). Alternatively, refunds or
credits may be claimed by the benefi-
cial owner under the procedures de-
scribed in §301.6402–2 of this chapter.
(2)No withholding between interest
payment dates—(i) In general. A with-
holding agent is not required to with-
hold tax under §1.1441–1 upon interest
accrued on the date of a sale of debt
obligations when that sale occurs be-
tween two interest payment dates, even
though the interest is subject to tax
under section 871 or section 881. See
§1.6045–1(c) for reporting require-
ments by brokers with respect to sale
proceeds. The exemption from with-
holding granted by this paragraph
(b)(2) is not subject to the withholding
certificate procedures described in
§1.1441–1(e)(1). However, the excep-
tion is not a determination that the
accrued interest is not fixed or deter-
minable annual or periodical income.
(ii)Anti-abuse rule. The exemption
in paragraph (b)(2)(i) of this section
does not apply if the sale of securities
is part of a plan the principal purpose
of which is to avoid tax by selling and
repurchasing securities and the with-
holding agent has actual knowledge or
reason to know of such plan.
(c)Corporate distributions—(1)
General rule. Subject to the provisions
of this paragraph (c), a corporation
making a distribution with respect to its
stock is not required to withhold under
section 1441,1442, or 1443 on the
portion of the distribution—
(i)That is treated as a nontaxable
distribution payable in stock or stock
rights;
(ii)That is treated as a distribution
in part or full payment in exchange for
stock;

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(iii)That is not paid out of accumu-
lated earnings and profits or current
earnings and profits;
(iv)That is paid by a regulated
investment company and is a capital
gain dividend (as defined in section
852(b)(3)(C)) or an exempt interest
dividend (as defined in section
852(b)(5)(A)); or
(v)That is paid by a real property
holding corporation (defined in section
897(c)(2)) or a real estate investment
trust (defined in section 856) and is
subject to withholding under section
1445 and the regulations under that
section.
(2)Determination of accumulated
and current earnings and profits on the
date of payment—(i) General rule. In
order for a corporation to determine the
amount of withholding tax due on any
distribution with respect to stock, the
distributing corporation may, at its
option, either treat the entire distribu-
tion as a dividend as defined in section
316 or may treat only a portion of the
distribution as a dividend if, prior to,
and at a time reasonably close to the
date of payment, the distributing corpo-
ration makes a reasonable estimate of
the portion of the distribution that is
not a dividend based upon expected
earnings and profits as relevant facts
and circumstances shall indicate. A
reasonable estimate may be made based
on the procedures described in
§31.3406(b)(2)–4(c)(2) of this chapter.
(ii)Procedures in case of under-
withholding. A distributing corporation
that determines at the end of the
taxable year of the distribution that it
underwithheld under section 1441 shall
be liable under section 1461 for the
amount underwithheld. No penalties
shall be imposed for failure to withhold
and deposit tax if—
(A)The corporation made a reason-
able estimate as provided in paragraph
(c)(2)(i) of this section; and
(B)Either—
(1) The corporation pays over the
underwithheld amount on or before the
date that it is required to file a return
on Form 1042 for the calendar year of
the distribution pursuant to §1.1461–
2(b); or
(2) The corporation is not a calendar
year taxpayer and it files an amended
return on Form 1042X (or such other
form as the Commissioner may pre-
scribe) for the calendar year in which
the distribution is made and pays the
additional amount of tax and interest
within 60 days of the close of the
taxable year of the distribution.
(iii)Reliance on reasonable estimate
by intermediary. For purposes of deter-
mining whether the payment of a
corporate distribution is a dividend, a
withholding agent that is not the dis-
tributing corporation may rely on repre-
sentations made by the distributing
corporation regarding the reasonable
estimate of expected earnings and
profits made pursuant to paragraph
(c)(2)(i) of this section. Failure by the
withholding agent to withhold the
required amount due to an erroneous
estimate that the Internal Revenue
Service has determined was not reason-
ably made shall be imputed to the
distributing corporation. Therefore, the
Internal Revenue Service may collect
any additional amount from the dis-
tributing corporation and subject the
corporation to applicable interest and
penalties as a withholding agent.
(3)Special rules in the case of
distributions from a regulated invest-
ment company. If the amount of distri-
butions designated as subject to section
852(b)(3)(C) or 852(b)(5)(A) exceeds
the amount permitted to be designated
under those sections for the taxable
year, then no penalties will be asserted
for any resulting underwithholding
provided the designations were based on
a reasonable estimate (made pursuant to
paragraph (c)(2)(i) of this section) and
adjustments to the amount withheld are
made within the time period described
in paragraph (c)(2)(ii)(B) of this section.
Any adjustment to the amount of tax
due and paid to the Internal Revenue
Service by the withholding agent as a
result of underwithholding shall not be
treated as a distribution for purposes of
section 562(c) and the regulations there-
under. Any amount of U.S. tax that a
foreign shareholder is treated as having
paid on the undistributed capital gain of
a regulated investment company under
section 852(b)(3)(D) may be claimed by
the foreign shareholder as a credit or
refund under §1.1464–1. The procedures
described in paragraph (c)(2)(iii) of this
section shall apply in the case of
distributions made to an intermediary.
(4)Overwithholding of tax. If the
tax on any distribution has been
overwithheld, adjustments may be
made in accordance with the proce-
dures described in §1.1461–2(a). Alter-
natively, refunds or credits may be
claimed in accordance with §1.1464–1,
relating to refunds or credits claimed
by the beneficial owner, or §1.6414–1,
relating to refunds or credits claimed
by the withholding agent.
(d)Withholding on certain gains.
Absent actual knowledge or reason to
know otherwise, a withholding agent
may rely on a claim regarding the
amount of gain described in §1.1441–
2(c) if the beneficial owner withholding
certificate, or other appropriate with-
holding certificate, states the beneficial
owner’s basis in the property giving
rise to the gain. In the absence of a
withholding certificate, the withholding
agent may withhold an amount under
§1.1441–1 that is necessary to assure
that the tax withheld is not less than 30
percent of the recognized gain. For this
purpose, the recognized gain is deter-
mined without regard to any deduction
allowed by the Internal Revenue Code
from the gains. The amount so with-
held shall not exceed 30 percent of the
amount payable by reason of the trans-
action giving rise to the recognized
gain. Adjustments to any amount of
overwithheld tax may be made in
accordance with the procedures de-
scribed in §1.1461–2(a). Alternatively,
refunds or credits may be claimed in
accordance with §1.1464–1, relating to
refunds or credits claimed by the
beneficial owner, or §1.6414–1, relat-
ing to refunds or credits claimed by the
withholding agent.
(e)Payments other than in U.S.
dollars—(1) In general. The amount of
a payment made in a medium other
than U.S. dollars is measured by the
fair market value of the property or
services provided in lieu of U.S.
dollars. The withholding agent may
liquidate the property prior to payment
in order to withhold the required
amount of tax under section 1441 or
obtain payment of the tax from an
alternative source. However, the obliga-
tion to withhold under section 1441 is
not deferred even if no alternative
source can be located. Thus, for pur-
poses of withholding under chapter 3
of the Internal Revenue Code, the
provisions of §31.3406(h)–2(b)(2)(ii) of
this chapter (relating to backup with-
holding from another source) shall not
apply. If the withholding agent satisfies
the tax liability related to such pay-
ments, the rules of paragraph (e)(3) of
this section apply.
(2)Payments in foreign currency. If
the amount subject to withholding tax
is paid in a currency other than the

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U.S. dollar, the amount of withholding
tax under section 1441 shall be deter-
mined by applying the applicable rate
of withholding to the foreign currency
amount and converting the amount
withheld into U.S. dollars on the date
of payment at the spot rate (as defined
in §1.988–1(d)(1)) or pursuant to a
reasonable spot rate convention. For
example, a withholding agent may use
a month-end spot rate or a monthly
average spot rate. A spot rate conven-
tion must be used consistently for all
non-dollar amounts withheld and from
year to year. Such convention cannot
be changed without the consent of the
Commissioner. The U.S. dollar amount
so determined shall be treated by the
beneficial owner as the amount of tax
paid on the income for purposes of
determining the final U.S. tax liability
and, if applicable, claiming a refund or
credit of tax.
(3)Tax liability of beneficial owner
satisfied by withholding agent—(i)
General rule. In the event the satisfac-
tion of a tax liability of a beneficial
owner by a withholding agent con-
stitutes income to the beneficial owner
and such income is of a type that is
subject to withholding, the amount of
the payment deemed made by the with-
holding agent for purposes of this
paragraph (e)(3) shall be determined
under the following gross-up formula:
Payment=
Gross payment without withholding
1–(tax rate)
(ii)Example. The following example
illustrates the provisions of this para-
graph (e)(3):
Example. College X awards a qualified schol-
arship within the meaning of section 117(b) to
foreign student, FS, who is in the United States
on an F visa. FS is a resident of a country that
does not have an income tax treaty with the
United States. The scholarship is $20,000 to be
applied to tuition, mandatory fees and books,
plus benefits in kind consisting of room and
board and roundtrip air transportation. College X
agrees to pay any U.S. income tax owed by FS
with respect to the scholarship. The fair market
value of the room and board measured by the
amount College X charges non-scholarship stu-
dents is $6,000. The cost of the roundtrip air
transportation is $2,600. Therefore, the total fair
market value of the scholarship received by FS is
$28,600. However, the amount taxable is limited
to the fair market value of the benefits in kind
($8,600) because the portion of the scholarship
amount for tuition, fees, and books is not in-
cluded in gross income under section 117. Under
the gross-up formula, College X is deemed to
make a payment of $10,000 ($8,600 divided by
(1–.14). The U.S. tax that must be deducted and
withheld from the payment under section 1441(b)
is $1,400 (.14 3 $10,000). College X reports
scholarship income of $30,000 and $1,400 of
U.S. tax withheld on Forms 1042 and 1042–S.
******
(g)Effective date. This section ap-
plies to payments of income made after
December 31, 1997.
Par. 9. Section 1.1441–4 is amended
by:
1.Revising the section heading.
2. Revising paragraphs (a) and
(b)(1)(ii).
3.Adding paragraph (b)(1)(vi).
4.Revising the last sentence of
paragraph (b)(2)(i).
5.Revising the introductory text of
paragraph (b)(2)(ii).
6.Paragraph (b)(2)(ii) is amended
by:
a.Revising paragraph (b)(2)(ii)(A).
b.Redesignating paragraph (b)(2)-
(ii)(H) as paragraph (b)(2)(ii)(J) and
amending newly designated paragraph
(b)(2)(ii)(J) by removing the period and
adding ‘‘; and’’ in its place.
c.Redesignating paragraphs (b)(2)-
(ii)(B), (C), (D), (E), (F) and (G) as
paragraphs (b)(2)(ii)(D), (E), (F), (G),
(H) and (I), respectively.
d.Adding new paragraphs (b)(2)(ii)-
(B), (C), and (K).
e.Amending newly designated para-
graph (b)(2)(ii)(I) by removing the
language ‘‘, and’’ and adding a semi-
colon in its place.
f.Amending newly designated para-
graphs (b)(2)(ii)(D), (E), (F), (G), and
(H) by removing the comma at the end
of the paragraphs and adding a semi-
colon in its place.
7.The concluding text of paragraph
(b)(2)(iv) is amended by:
a.Removing the language ‘‘ten’’
and adding ‘‘20’’ in its place.
b.Removing the language ‘‘Director
of Foreign Operations’’ and adding
‘‘Assistant Commissioner (Interna-
tional)’’ in its place.
8.Revising paragraph (b)(2)(v).
9.Adding paragraph (b)(2)(vi).
10.Adding paragraph (b)(6).
11.Revising paragraphs (c), (d), (e),
and (f).
12.Removing paragraphs (g), (h),
and (i).
13.Removing the OMB parentheti-
cal and the authority citation at the end
of the section.
The revisions and additions read as
follows:
§1.1441–4 Certain exemptions from
withholding.
(a)Certain income connected with a
U.S. trade or business—(1) In general.
No withholding is required under sec-
tion 1441 on income otherwise subject
to withholding if the income is (or is
deemed to be) effectively connected
with the conduct of a trade or business
within the United States and is includ-
ible in the beneficial owner’s gross
income for the taxable year. For
purposes of this paragraph (a), an
amount is not deemed to be includible
in gross income if the amount is (or is
deemed to be) effectively connected
with the conduct of a trade or business
within the United States and the
beneficial owner claims an exemption
from tax under an income tax treaty
because the income is not attributable
to a permanent establishment in the
United States. To claim a reduced rate
of withholding because the income is
not attributable to a permanent
establishment, see §1.1441–6(b)(1).
This paragraph (a) does not apply to
income of a foreign corporation to
which section 543(a)(7) applies for the
taxable year or to compensation for
personal services performed by an
individual. See paragraph (b) of this
section for compensation for personal
services performed by an individual.
(2)Withholding agent’s reliance on
a claim of effectively connected
income—(i) In general. Absent actual
knowledge or reason to know other-
wise, a withholding agent may rely on
a claim of exemption based upon para-
graph (a)(1) of this section if, prior to
the payment to the foreign person, the
withholding agent complies with the
requirements of §1.1441–1(e)(1) and is

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furnished either a beneficial owner
withholding certificate (including one
that is transmitted with an intermediary
withholding certificate described in
§1.1441–1(e)(3)(iv)), or an intermedi-
ary withholding certificate described in
§1.1441–1(e)(3)(ii) from a partnership
acting for its own account (regardless
of whether the distributive share infor-
mation is stated on the certificate and
whether the certificates described in
§1.1441–1(e)(3)(iii)(C) are attached).
For purposes of this paragraph (a), a
withholding certificate is not valid
unless it includes a taxpayer identifying
number. A statement on the withhold-
ing certificate that the income is
effectively connected with the conduct
of a trade or business in the United
States and that the income will be
reported by the beneficial owner on an
income tax return will satisfy the
requirement of §1.1441–1(e)(2)(ii) or
(e)(3)(iii) that the certificate describe
the basis for the claim of reduced rate.
A withholding agent may presume that
the income is not effectively connected
with the conduct of a trade or business
in the United States if the withholding
certificate is silent or if the withholding
agent cannot associate the payment
with the required documentation (as
defined in §1.1441–1(f)(1)). See
§1.1441–1(e)(4)(ii)(B)(2) for the period
of validity applicable to a certificate
provided under this section. A with-
holding certificate shall be effective
only for the item or items of income
specified therein. In compliance with
§1.1441–1(e)(3)(ii)(A), the validity of
the certificate expires when subsequent
circumstances arising during the tax-
able year indicate that the income to
which the certificate relates is not, or is
no longer expected to be, effectively
connected with the conduct of a trade
or business within the United States.
(ii)Exemption of certain foreign
partnerships and foreign corporations.
[Reserved] For guidance prior to the
date these regulations are published as
final regulations in the Federal Regis-
ter, see §1.1441–4(f) as contained in
the 26 CFR Part 1, edition revised
April 1, 1995.
(iii)Payment to joint owners. In the
case of payments to joint owners, a
w i t h h o l d i n g c e r t i f i c a t e m u s t b e
provided by each beneficial owner
claiming a reduced rate certifying that
the income is effectively connected
with the conduct of a trade or business
within the United States.
(3)Income on notional principal
contracts. A withholding agent that
pays income attributable to a notional
principal contract described in §1.863–
7(a) shall have no obligation to with-
hold on the amounts paid under the
terms of the notional principal contract
regardless of whether a withholding
certificate is provided. For rules regard-
ing the obligation to file a return, see
§ § 1 . 1 4 6 1 – 1 ( c ) ( 1 ) ( i ) a n d 1 . 6 0 4 1 –
1(d)(5).
(4)Failure to act in accordance
with presumption. A withholding agent
that does not withhold, contrary to the
presumption set forth in paragraph
(a)(2) of this section that income is not
effectively connected with the conduct
of a trade or business within the United
States, shall be liable for the tax
imposed under section 1461, without
the benefit of a reduced rate, unless the
withholding agent can demonstrate to
the satisfaction of the District Director
or the Assistant Commissioner (Interna-
tional) that the income is effectively
connected and was included in the
Federal income tax return of the
beneficial owner and that the proper
amount of tax, if any, has been paid to
the Internal Revenue Service. Proof of
payment of tax may be established on
the basis of a Form 4669 (or such other
form as the Internal Revenue Service
may prescribe) establishing the amount
of tax, if any, actually paid by the
beneficial owner on the income. Proof
that a reduced rate of withholding was
appropriate may be established by an
appropriate withholding certificate de-
scribed in §1.1441–1(e)(1)(i). However,
if the required documentation was not
received by the withholding agent
before the time the payment was made
or within the period specified in
§1.1441–1(f)(2)(i)(B)(1), then the Dis-
trict Director or the Assistant Commis-
sioner (International) may require addi-
tional proof if it determines that the
delays in obtaining the required docu-
mentation affect its reliability. The
withholding agent will be liable for
interest under section 6601 regardless
of whether the underlying tax liability
is due. In addition, the withholding
agent may be subject to penalties.
(b)Compensation for personal serv-
ices of an individual—(1) Exemption
from withholding. ** *
******
(ii)Such compensation that would
be subject to withholding under section
3402 but for the provisions of section
3401(a) (not including paragraph (a)(6)
of that section) and the regulations
under that section. This paragraph
(b)(1)(ii) does not apply to payments to
a nonresident alien individual from any
trust described in section 401(a), any
annuity plan described in section
403(a), or any annuity, custodial ac-
count, or retirement income account
described in section 403(b). Thus, for
example, payments to a nonresident
alien individual from a trust described
in section 401(a) are subject to with-
holding under section 1441 and not
under section 3405 or 3406.
******
(vi)Compensation that is exempt
from withholding under section 3402
by reason of section 3402(e), provided
that the employee and his employer
enter into an agreement under section
3402(p) to provide for the withholding
of income tax upon payments of
amounts described in §31.3401(a)–
3(b)(1) of this chapter. An employee
who desires to enter into such an
agreement should furnish his employer
with Form W–4 (withholding exemp-
tion certificate) (or such other form as
the Internal Revenue Service may
prescribe). See section 3402(f) and the
r e g u l a t i o n s t h e r e u n d e r a n d
§31.3402(p)–1 of this chapter.
(2)Manner of obtaining withholding
exemption under tax treaty—(i) In
general. ** * The exemption from
withholding becomes effective for pay-
ments made at least 20 days after a
copy of the accepted statement is
forwarded to the Assistant Commis-
sioner (International).
(ii)Statement claiming withholding
exemption. The statement claiming an
exemption from withholding shall be
made on Form 8233 (or an acceptable
substitute). Form 8233 shall be dated,
signed by the beneficial owner under
the penalties of perjury, and contain the
following information:
(A)The individual’s name, perma-
nent residence address, taxpayer identi-
fying number, and the U.S. visa num-
ber, if any;
(B)The individual’s current immi-
gration status and visa type;
(C)The individual’s original date of
entry into the United States;
******
(K)Any other information as the
form may require.

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******
(v)Copies of Form 8233. The with-
holding agent shall forward one copy
of each Form 8233 that is accepted
under paragraph (b)(2)(iv) of this sec-
tion to the Assistant Commissioner
(International), within five days of his
or her acceptance. The Assistant Com-
missioner (International) may review
the forms so submitted. The withhold-
ing agent shall retain a copy of Form
8233.
(vi)Electronic filing. Under proce-
dures published by the Internal Reve-
nue Service, Forms 8233 may be filed
electronically with the Internal Revenue
Service.
******
(6)Personal exemption—(i) In gen-
eral. To determine the tax to be
withheld at source under §1.1441–1
from remuneration paid for personal
services performed within the United
States by a nonresident alien individual
and from scholarship and fellowship
income described in paragraph (c) of
this section, a withholding agent may
take into account one personal exemp-
tion pursuant to sections 873(b)(3) and
151 regardless of whether the income
is effectively connected. The exemption
does not need to be prorated for pur-
poses of withholding under section
1441.
(ii)Multiple exemptions. More than
one personal exemption may be
claimed in the case of a resident of a
contiguous country or a national of the
United States under section 873(b)(3).
In addition, residents of a country with
which the United States has an income
tax treaty in effect may be eligible to
claim more than one personal exemp-
tion if the treaty so provides. Claims
for more than one personal exemption
shall be made on the withholding
certificate furnished to the withholding
agent. The exemptions do not need to
be prorated for purposes of withholding
under section 1441.
(iii)Special rule where both schol-
arship and compensation income is
received. The fact that both scholarship
income and compensation income are
received during the taxable year does
not entitle the taxpayer to claim more
than one personal exemption amount
(or more than the additional amounts
permitted under paragraph (b)(6)(ii) of
this section). Thus, if a nonresident
alien student receives taxable scholar-
ship amounts from one payor and com-
pensation income from another payor,
no more than the total personal exemp-
tion amount permitted under the Inter-
nal Revenue Code or under an income
tax treaty may be taken into account by
both payors.
(c)Special rules for scholarship and
fellowship income—(1) In general. Un-
der section 871(c), certain amounts
paid as a scholarship or fellowship for
study, training, or research in the
United States to a nonresident alien
individual temporarily present in the
United States as a nonimmigrant under
subparagraph (F), (J), (M), or (Q) of
section 101(a)(15) of the Immigration
and Nationality Act are treated as
income effectively connected with the
conduct of a trade or business within
the United States. Such amounts (as
described in the second sentence of
section 1441(b)) are subject to with-
holding tax under section 1441, but at
the lower rate of 14 percent. That rate
may be reduced under the provisions of
an income tax treaty. Claims of a
reduced rate under an income tax treaty
shall be made under the procedures
described in §1.1441–6(b)(1). There-
fore, claims for amounts described in
this paragraph (c)(1) may not be shown
on a Form 8233. However, if the payee
is receiving both compensation for
personal services and income described
in this paragraph (c)(1) from the same
withholding agent, claims for both
types of income may be shown on
Form 8233.
(2)Alternate withholding election. A
withholding agent may elect to with-
hold on the amounts described in
paragraph (c)(1) of this section at the
rates applicable under section 3402, as
if the income were wages. Such elec-
tion shall be made by obtaining a Form
W–4 (or an acceptable substitute or
such other form as the Internal Reve-
nue Service may prescribe) from the
beneficial owner. Such Form W–4 shall
also serve as notice to the beneficial
owner that the income is being treated
as wages for purposes of withholding
tax under section 1441.
( d )A n n u i t i e s r e c e i v e d u n d e r
qualified plans. Withholding is not
required under section §1.1441–1 in the
case of any amount received as an
annuity if the amount is exempt from
tax under section 871(f) and the
regulations under that section. A state-
ment on the beneficial owner withhold-
ing certificate that the annuity is
excluded from gross income by reason
of section 871(f) and the basis for that
exclusion satisfies the requirement of
§1.1441–1(e)(2)(ii) that the beneficial
owner state the basis for the claim of
reduced rate. A beneficial owner with-
holding certificate furnished for pur-
poses of claiming the benefits of the
exemption under this paragraph (d) is
not valid unless it includes a taxpayer
identifying number. See §1.1441–
1(f)(3)(ii) regarding applicable pre-
sumptions if the withholding agent
does not hold the required documenta-
tion prior to payment.
(e)Income of a foreign central bank
of issue or the Bank for International
Settlements. Section 895 provides for
the exclusion from gross income of
certain income derived by a foreign
central bank of issue, or by the Bank
for International Settlements, from obli-
gations of the United States or of any
agency or instrumentality thereof or
from bank deposits. Absent actual
knowledge or reason to know that a
foreign central bank of issue, or the
Bank for International Settlements, is
operating outside the scope of the
exclusion granted by section 895, the
withholding agent may rely on a claim
of exemption if, prior to making the
payment, the withholding agent com-
plies with the requirements of §1.1441–
1(e)(1). The following statement on a
beneficial owner withholding certificate
satisfies the requirement in §1.1441–
1(e)(2)(ii) that the beneficial owner
state the basis for the claim of reduced
rate:
(1)The bank is a foreign central
bank of issue, or the Bank for Interna-
tional Settlements; and
(2)The bank does not, and will not,
hold the obligations or the bank de-
posits covered by the withholding
agreement for, or use them in connec-
tion with, the conduct of a commercial
banking function or other commercial
activity.
(f)Effective date—(1) General rule.
This section applies to payments of
income made after December 31, 1997.
(2)Transition rules. A withholding
agent that holds a valid Form 4224 on
a date that is 60 days after the date
these regulations are published as final
regulations in the Federal Register may
treat it as a valid withholding certifi-
cate until its validity expires under
applicable provisions as in effect on
April 22, 1996.

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§1.1441–4T [Removed]
Par. 10. Section 1.1441–4T is
removed.
Par. 11. Section 1.1441–5 is revised
to read as follows:
§1.1441–5 Withholding on payments
to pass-through entities.
(a)Domestic partnerships—(1) Ex-
emption from withholding on payment
to domestic partnerships. A payment of
income to a domestic partnership is not
subject to withholding of tax under
section 1441 even though it may have
partners that are foreign persons. A
payor (within the meaning of section
3406) may rely, in accordance with the
procedures under §1.1441–1(d), on a
F o r m W – 9 f u r n i s h e d b y t h e
partnership.
(2)Withholding by a domestic
partnership—(i) In general. A domestic
partnership is required to withhold tax
under §1.1441–1 as a withholding
agent on the gross amount of items of
income subject to withholding that are
includible in the distributive share of
income of a partner that is a foreign
person. Pursuant to the authority
provided under section 702(a), each
partner shall take into account sepa-
rately its distributive share of items of
income subject to withholding, and thus
the partnership, pursuant to section
703(a)(1), shall separately state these
items of gross income when computing
its taxable income. A partnership shall
withhold when any distributions that
include items of income subject to
withholding are made. To the extent a
foreign partner’s distributive share of
an item of income subject to withhold-
ing has not been actually distributed,
the partnership is required to withhold
on the partner’s distributive share of
that item of income on the earlier of
the date that the statement required
under section 6031(b) and §1.6031–
1(b) to be provided to that partner is
mailed or otherwise furnished to the
partner or the due date for furnishing
that statement as provided under
§1.6031–1(b)(1). If a partnership with-
holds on a distributive share before the
income is actually distributed to the
partner, then withholding is not re-
quired when the income is subse-
quently distributed.
(ii)Reliance on a partner’s claim
for reduced withholding. Absent actual
knowledge or reason to know other-
wise, a domestic partnership may rely
on a claim for reduced withholding by
a partner, if prior to the time the
partnership is required to withhold, the
partnership complies with the require-
ments of §1.1441–1(d) or (e)(1),
whichever is applicable, with respect to
the partner. See the presumptions de-
scribed in §1.1441–1(f)(4)(iii)(A) appli-
cable to a domestic partnership in
determining the U.S. or foreign status
of its partners.
(b)Foreign partnerships—(1) In
general. A withholding agent must treat
a payment to a foreign partnership as a
payment to its partners, except to the
extent the partnership is treated as a
payee under §1.1441–1(c)(3)(ii). See
§1.1441–1(e)(5)(v) for payments to a
foreign partnership that claims to be a
qualified intermediary. If the part-
nership is not treated as a payee, a
withholding agent may, absent actual
knowledge or reason to know other-
wise, rely on a claim for a reduced rate
of withholding by a partner if, prior to
the payment, the withholding agent
holds an intermediary withholding cer-
tificate described in §1.1441–1(e)(3)-
(iii) pertaining to the partner. The
certificate will be considered to pertain
to the partner if the appropriate with-
holding certificate for the partner is
attached to the intermediary withhold-
ing certificate. The appropriate with-
holding certificate for the partner may
be a beneficial owner withholding
certificate described in §1.1441–1(e)(2)
(for a partner claiming to be a foreign
person and a beneficial owner, deter-
mined under the provisions of §1.1441–
1(c)(6)), the applicable certificates de-
scribed in §1.1441–1(d)(2) (for a part-
ner claiming to be a U.S. payee), an
intermediary withholding certificate de-
scribed in §1.1441–1(e)(3)(ii) or (iv)
(for a partner that is a qualified
intermediary or not otherwise acting for
its own account), or an intermediary
withholding certificate described in
§1.1441–1(e)(3)(iii) representing that
the income to which the certificate
relates is effectively connected with the
conduct of a trade or business in the
United States. A claim must be pre-
sented for each portion of the payment
that represents an item of income
includible in the distributive share of
the partner. When making a claim for
several partners, the partnership may
present a single intermediary withhold-
ing certificate to which the partners’
certificates are attached.
(2)Special rules in the case of
tiered partnerships. If a foreign or
domestic partnership is a partner of a
foreign partnership, the rules of this
paragraph (b)(2) shall apply.
(i)A withholding agent may treat
any portion of a payment made to a
foreign partnership that represents an
item of income includible in the
distributive share of a partner (at any
level in the chain of tiers) that is a
domestic partnership as a payment to a
U.S. person if the domestic partnership
complies with the procedures described
in §1.1441–1(d) (relating to the claim
of U.S. status by a payee or beneficial
owner).
(ii)A withholding agent may treat
any portion of a payment made to a
foreign partnership that represents an
item of income includible in the
distributive share of a partner (at any
level in the chain of tiers) that is a
foreign partnership as a payment to a
foreign person if the withholding agent
may treat the foreign partnership as the
payee pursuant to the provisions in
§1.1441–1(c)(3)(ii).
(iii)Where the partner in the foreign
partnership to whom the payment is
made (second tier) is a foreign part-
nership (first tier), the appropriate
withholding certificate for the partner is
an intermediary withholding certificate
described in §1.1441–1(e)(3)(iii) issued
by the second tier, and an intermediary
withholding certificate described in
§1.1441–1(e)(3)(iii) issued by the first
tier to which is attached an appropriate
withholding certificate for each of the
partners of the first tier. The rules of
this paragraph (b)(2)(iii) shall apply to
any number of tiers of foreign part-
nerships.
(3)Presumptions. A withholding
agent may apply the presumption de-
scribed in §1.1441–1(f)(4)(ii) to any
portion of a payment for which the
withholding agent does not receive the
required documentation (as defined in
§1.1441–1(f)(1)(ii)).
(4)Example. The rules of this para-
graph (b) may be illustrated by the
following example:
Example. (i) Facts. FP is a foreign partnership
organized under the laws of Country X deriving
interest that would qualify as portfolio interest
described in section 871(h)(2)(B) if the statement
described in section 871(h)(5) is furnished. FP
has three partners, A, B, and C. FP furnishes to
the withholding agent an intermediary withhold-
ing certificate described in §1.1441–1(e)(3)(iii)
to which it attaches a Form W–9 for A and a

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beneficial owner withholding certificate for B.
No documentation is attached for C.
(ii) Analysis. Absent actual knowledge or
reason to know otherwise, the withholding agent
may rely on A’s Form W–9 to treat A as a U.S.
person and, therefore, does not withhold on A’s
share of the payment. The withholding agent
must comply with any information reporting
obligations under sections 6042 (i.e., issue a
Form 1099) with respect to A. Absent actual
knowledge or reason to know otherwise, the
withholding agent may also rely on B’s claim for
portfolio interest treatment for its share of the
payment. The withholding agent must report the
payment to B on Forms 1042 and 1042–S.
Because the withholding agent cannot associate
the required documentation (as defined §1.1441–
1(f)(1)) for C’s share of the interest income, the
withholding agent may, for purposes of section
3406, treat that amount as a reportable payment
made to a U.S. payee that is not an exempt
recipient. See §1.1441–1(f)(4)(ii).
(c)Trusts and estates. [Reserved]
(d)Effective date—(1) General rule.
This section applies to payments of
income made after December 31, 1997.
(2)Transition rules. A withholding
agent that holds a valid withholding
certificate on the date that is 60 days
after the date these regulations are
published as final regulations in the
Federal Register may treat it as a valid
withholding certificate until its validity
expires under applicable provisions as
in effect on April 22, 1996.
Par. 12. Section 1.1441–6 is revised
to read as follows:
§1.1441–6 Claim of a reduced rate
of tax under an income tax treaty.
(a)In general. Under an income tax
treaty in effect between the United
States and a foreign country, the rate of
tax to be withheld on a payment of
income subject to withholding may be
reduced if the beneficial owner of the
income is a resident of the foreign
country. Other requirements or condi-
tions of the treaty, or revenue proce-
dures issued thereunder, for claiming
treaty benefits must also be satisfied,
such as a limitation of benefits provi-
sion. 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 also
§1.1441–4(b)(2) for rules regarding
claims of reduced rate of withholding
under an income tax treaty in the case
o f c o m p e n s a t i o n f r o m p e r s o n a l
services.
(b)Reliance on claim of treaty bene-
fits—(1) In general. Absent actual
knowledge or reason to know other-
wise, a withholding agent may rely on
a claim that a beneficial owner is
entitled to a reduced rate of withhold-
ing based upon an income tax treaty if,
prior to the payment, the withholding
agent complies with the requirements
of §1.1441–1(e)(1). Except as other-
wise provided in paragraph (b)(2) or
(b)(3) of this section, for purposes of
this paragraph (b)(1), a beneficial
owner withholding certificate men-
tioned in §1.1441–1(e)(1) means a
beneficial owner withholding certificate
described in §1.1441–1(e)(2), that in-
cludes the beneficial owner’s taxpayer
identifying number and states that the
taxpayer has complied with the ad-
vance ruling requirements described in
paragraph (e) of this section (if applica-
ble), and, if the beneficial owner is a
person related to the withholding agent
within the meaning of section 267(b)
and 707(b), that the beneficial owner
will file the statement required under
§1.6114–1(b) (if applicable). The re-
quirement to file an information return
under section 6114 for income subject
to withholding applies only to amounts
paid during the calendar year that, in
the aggregate, exceed $500,000. See
§301.6114–1(b) of this chapter. See
paragraph (d) of this section for cir-
cumstances under which the withhold-
ing agent may be notified by the
Internal Revenue Service that the cer-
tificate cannot be relied upon to grant
benefits under an income tax treaty. A
beneficial owner’s taxpayer identifying
number on a withholding certificate is
valid for purposes of establishing proof
of residence in a treaty country only if
the taxpayer identifying number is
certified by the Internal Revenue Serv-
ice. However, absent actual knowledge
or reason to know otherwise, a with-
holding agent may rely on a taxpayer
identifying number that appears correct
on its face, without having to inquire as
to whether the taxpayer identifying
number is certified, if the permanent
residence address on the certificate is
in the country whose tax treaty with
the United States is invoked. See the
confirmation and notification proce-
dures described in §1.1441–1(e)(4)(iv)
and (v).
(2)Special rules for certain divi-
dends. In the case of dividends on
stock traded on a U.S. established
financial market, a withholding agent
may rely on a beneficial owner with-
h o l d i n g c e r t i f i c a t e d e s c r i b e d i n
§1.1441–1(e)(2). For this purpose, a
U.S. established financial market is a
national securities exchange that is
registered under section 6 of the
Securities Exchange Act of 1934 (15
U.S.C. 78F), or an interdealer quotation
system sponsored by a national se-
curities association registered under
section 15A of the Securities Exchange
Act of 1934. In the case of payments
made outside the United States (as
defined in §1.6049–5(e)) with respect
to an offshore account (as defined in
§1.6049–5(d)(3)), a withholding agent
may also consider that it holds a
withholding certificate if it holds a
certificate of residence described in
paragraph (c)(3) of this section or
documentary evidence described in
paragraph (c)(4) of this section that the
withholding agent has reviewed and
maintains in its records. The withhold-
ing agent maintains the reviewed docu-
ments by retaining either the docu-
ments viewed or a photocopy thereof
and noting in its records the date on
which, and by whom, the documents
were received and reviewed. This para-
graph (b)(2) shall not apply to divi-
dends that are exempt from withhold-
ing based on a claim that the dividends
are effectively connected with the
conduct of a trade or business in the
United States.
(3)Competent authorities agree-
ment. The procedures described in this
section may be modified to the extent
the U.S. competent authority may agree
with the competent authority of a
country with which the United States
has an income tax treaty in effect.
(4)Special rules for payments to
certain foreign entities—(i) Determina-
tion of beneficial owner. Under
§1.1441–1(c)(6)(ii)(B), the tax princi-
ples in effect under the laws of the
country whose tax treaty with the
United States is invoked apply in
certain cases to determine the benefi-
cial owner of income entitled to claim
a reduced rate of withholding under
that income tax treaty. Thus, if a
beneficial owner, as determined under
§1.1441–1(c)(6)(ii)(B), is not a resident
of the country whose law has been
applied to determine beneficial owner
status, then a payment to a foreign
entity will not qualify for a reduced
rate under that country’s tax treaty with
the United States even if the foreign
entity receiving the payment is
organized in that foreign country. Con-
versely, if a beneficial owner, as
determined under §1.1441–1(c)(6)-
(ii)(B), is a resident of the country

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whose law has been applied to deter-
mine beneficial owner status, then the
beneficial owner’s share of a payment
to a foreign entity will qualify for a
reduced rate under the applicable in-
come tax treaty (provided other re-
quirements for qualification are met)
even if the foreign entity receiving the
payment is not organized in, or is not a
resident of, the foreign country in
which the beneficial owner is resident.
(ii)Withholding certificates. The
person claiming a reduced rate of tax
under an income tax treaty shall apply
the rules of §1.1441–1(c)(6)(ii)(B) and
paragraph (b)(4)(i) of this section to
determine the beneficial owner of
income and entitlement to a reduced
rate under an income tax treaty. The
beneficial owner so determined may
provide, as appropriate, a beneficial
owner withholding certificate described
in paragraph (b)(1) or (b)(2) of this
section. Thus, for example, if the
beneficial owner, as determined under
§1.1441–1(c)(6)(ii)(B), is the interest
holder rather than the entity, then the
entity shall be treated as a foreign
partnership for purposes of determining
which withholding certificate is appro-
priate. If, conversely, the beneficial
owner, as determined under §1.1441–
1(c)(6)(ii)(B), is the entity rather than
the interest holders, then the entity
shall be treated as a corporation for
purposes of determining which with-
holding certificate is appropriate.
(iii)Request for dual treatment. As
set forth in §1.1441–1(c)(6)(ii)(B), a
withholding agent may make payments
to a foreign entity that is simul-
taneously claiming a reduced rate of
tax on its own behalf and a reduced
rate on behalf of persons in their
capacity as interest holders in that
entity. In such a case, the withholding
agent may, at its option, accept such
dual claims based, as appropriate, on
beneficial owner withholding certifi-
cates described in paragraph (b)(1) or
(2) of this section or documentary
evidence described in §1.6049–5(c)(2)-
(ii) furnished by such persons with
respect to their respective share of such
payments, even though the withholding
agent holds different withholding cer-
tificates that requires it to treat the
entity inconsistently with respect to
different payments or with respect to
different portions of the same payment.
See paragraph (b)(4)(v) Example 2 of
this section.
(iv) Reciprocal application by treaty
partners. Paragraph (b)(4) of this sec-
tion and the principles of §1.1441–1(c)-
(6)(ii)(B) will not apply if the U.S.
competent authority determines that a
treaty partner is not reciprocally apply-
ing the principles of §1.1441–1(c)(6)-
(ii)(B) to entities organized under the
laws of the United States or to interest
holders residing in the United States. In
such case, the rules set forth in
§1.1441–1(c)(6) shall apply without
regard to the rules in §1.1441–1(c)-
(6)(ii)(B). This determination shall be
effective upon publication of relevant
guidance by the Service and shall apply
prospectively only.
(v) Examples. This paragraph (b)(4)
i s i l l u s t r a t e d b y t h e f o l l o w i n g
examples:
Example 1—(i) Facts. Entity A is a business
organization formed under the laws of country Y
that has an income tax treaty with the United
States. Under the laws of country Y, A is subject
to tax at the entity level and, therefore, is treated
as the beneficial owner of income it receives and
as a resident of country Y for purposes of the
U.S.-Y tax treaty. A receives U.S. source
royalties from withholding agent R and claims a
reduced rate of withholding under the U.S.-Y tax
treaty on its own behalf (rather than on behalf of
its interest holders). A furnishes a beneficial
owner withholding certificate described in para-
graph (b)(1) of this section claiming to be the
beneficial owner of the royalties.
(ii)Analysis. For purposes of claiming treaty
benefits under the U.S.-Y treaty, A is treated as
the beneficial owner of the royalties under
§1.1441–1(c)(6)(ii)(B) since, under the tax law of
country Y, A is required to include the royalties
in income. R may treat A as the beneficial owner
of the income for purposes of granting the
benefit of a reduced rate under the U.S.-Y tax
treaty.
Example 2—(i) Facts. The facts are the same
as under Example 1, except that one of A’s
interest holders, T, is a corporation residing in
country X. The U.S.-X tax treaty reduces the rate
on royalties to zero whereas the rate on royalties
under the U.S.-Y tax treaty is only reduced to 5
percent. Under the laws of country X, A is
taxable on a flow-through basis and not at the
entity level and T is required to include in
income its distributive share of A’s income. T
claims to be the beneficial owner of its share of
the royalty income paid to A and provides a
beneficial owner certificate to A claiming the
benefit of a zero rate under the U.S.-X tax treaty.
A furnishes to R a beneficial owner withholding
certificate for itself for the portion of the
payment for which A alone claims to be the
beneficial owner. In addition, it furnishes to R an
intermediary withholding certificate described in
§1.1441–1(e)(3)(iii) to which it attaches T’s
beneficial owner withholding certificate for the
portion of the payment for which T claims to be
the beneficial owner.
(ii)Analysis. For purposes of claiming treaty
benefits under the U.S.-Y treaty, A is treated as
the beneficial owner of all of the royalty income
received from R under §1.1441–1(c)(6)(ii)(B),
since, under the tax law of country Y (i.e., under
the laws of the country whose treaty benefits are
claimed), A is subject to tax on that income.
However, for purposes of claiming benefits under
the U.S.-X treaty, T may also be treated as the
beneficial owner of its share of the royalty
income under §1.1441–1(c)(6)(ii)(B), since, un-
der the tax law of country X (i.e., the laws of the
country whose treaty benefits are claimed), T is
required to include in income its share of A’s
income. Therefore, R may treat the royalty
payment to a single foreign entity (A) as
beneficially owned by different persons as a
result of claims presented under different treaties.
R may, at its option, grant dual treatment, that is,
a reduced rate of zero percent under the U.S.-X
treaty on the portion of the royalty payment for
which T claims to be the beneficial owner and a
reduced rate of 5 percent under the U.S.-Y treaty
for the balance. However, under paragraph
(b)(4)(iii) of this section, the withholding agent
may, at its option, treat A as the sole beneficial
owner of the royalty and grant benefits under the
U.S.-Y treaty only.
Example 3. (i) Entity A is a business organi-
zation formed under the laws of country Y. A
receives from withholding agent R U.S. source
royalties and U.S. source interest income that is
potentially eligible for the portfolio interest
exemption under section 871(h) and 881(c) of
the Internal Revenue Code. A’s interest holders
are S, an individual who resides in country Y, T,
an individual who resides in country X, and U,
an individual resident in the United States. The
United States has a tax treaty with both country
Y and country X. The U.S.-Y tax treaty reduces
the rate on royalties to 5 percent, and the U.S.-X
tax treaty reduces the rate to zero. A is classified
as a partnership under U.S. tax principles. Under
the tax laws of country Y, A is taxable on a
flow-through basis, and S is required to include
in income her distributive share of A’s income.
Under the tax laws of country X, A is taxable on
a flow-through basis and T is required to include
in income her distributive share of A’s income.
A furnishes R an intermediary withholding certi-
ficate described in §1.1441–1(e)(3)(iii) to which
it attaches—
(A)A Form W–9 for U; and
(B)Beneficial owner withholding certificates
for S and T that claim the portfolio interest
exemption and a reduced rate of withholding
under the U.S. treaties with Y and X,
respectively.
(ii)Analysis. For purposes of claiming bene-
fits under the U.S.-Y treaty, S is treated as the
beneficial owner of his distributive share of
royalty income received from R under §1.1441–
1(c)(6)(ii)(B) since, under the tax law of country
Y (i.e., the laws of the country whose treaty
benefits are claimed in the case of S), S is the
person required to include in income her dis-
tributive share of the royalty. Therefore, R may
withhold on S’s proportionate share of the
royalty income paid to A at the 5 percent rate
under the U.S.-Y tax treaty. For purposes of
claiming benefits under the U.S.-X tax treaty, T
is treated as the beneficial owner of her
distributive share of royalty income under
§1.1441–1(c)(6)(ii)(B), since, under the laws of
country X (i.e., the laws of the country whose
treaty benefits are claimed in the case of T), T is
the person required to include in income her
distributive share of the royalty. Therefore, R
may withhold on T’s proportionate share of the
royalty income paid to A at the zero rate under
the U.S.-X treaty, even though A is not
organized in, or a resident of, country X. R may
rely on U’s Form W–9 to treat U as a U.S.
person. Therefore, R does not withhold on U’s

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share of the royalty payment. R also does not
withhold on any portion of the interest paid to A
because S and T have furnished beneficial owner
certificates and U has furnished a Form W–9.
(c)Proof of tax residence in a treaty
country—(1) In general. A beneficial
owner establishes proof of its tax
residence in a treaty country for pur-
poses of its claim to the withholding
agent that a reduced rate of tax applies
under an income tax treaty by comply-
ing with the procedures described in
this paragraph (c) or with such other
procedures as the Internal Revenue
Service may prescribe in published
guidance. For purposes of this section,
the residence of a beneficial owner
must be determined in accordance with
the provisions of the applicable U.S.
income tax treaty as may be clarified
by any applicable regulations there-
under or technical explanations thereof,
and any procedures issued by the
Internal Revenue Service on the deter-
mination or proper method of certifying
residence under particular income tax
treaties.
(2)Certification of taxpayer identify-
ing number—(i) In general. A taxpayer
may certify its taxpayer identifying
number as required under paragraph
(b)(1) of this section by having the
taxpayer identifying number certified
by the Internal Revenue Service either
directly as provided under paragraph
(c)(2)(ii) of this section or through a
qualified intermediary as provided in
paragraph (c)(2)(iii) of this section.
(ii)IRS-certified TIN. The Internal
Revenue Service may certify a taxpayer
identifying number based upon a cer-
tificate of residence described in para-
graph (c)(3) of this section or docu-
mentary evidence described in para-
graph (c)(4) of this section. The certifi-
cate or documentary evidence must be
furnished to the Internal Revenue Serv-
ice by or on behalf of the beneficial
owner upon application for the tax-
payer identifying number or at any
other time, as permitted under such
procedures as the Internal Revenue
Service may prescribe. If the tax
residence of the beneficial owner
changes, the beneficial owner shall
promptly notify the Internal Revenue
Service of that change. In addition, the
Internal Revenue Service may ex-
change information for the purpose of
confirming with the appropriate tax
authority of the other country that the
beneficial owner continues to be a tax
resident of that country. The Internal
Revenue Service may from time to
time, in its discretion, request that the
beneficial owner reconfirm its re-
sidence in the treaty country.
(iii)Special rules for qualified inter-
mediaries. The Internal Revenue Serv-
ice may certify a taxpayer identifying
number based upon the certification of
a qualified intermediary described in
§1.1441–1(e)(5)(ii) regarding the tax
residence of any of its account holders,
or persons owning an interest in the
qualified intermediary, under proce-
dures agreed upon with the Internal
Revenue Service. If a new account or
interest holder has a taxpayer identify-
ing number at the time it opens an
account or acquires an interest, the
qualified intermediary may rely on a
statement by the account or interest
holder that appropriate proof of tax
residence in the treaty jurisdiction was
previously provided to the Internal
Revenue Service. In such case, the
qualified intermediary must notify the
Internal Revenue Service each time the
account or interest holder’s address
changes to another country or when the
account or interest holder terminates its
relationship with the qualified inter-
mediary.
(3)Certificate of residence. A cer-
tificate of residence is generally a
certificate issued by the competent
authority (or another appropriate tax
authority) of the treaty country of
which the taxpayer claims to be a
resident that certifies that the taxpayer
has filed its most recent income tax
return as a resident of that country. A
certificate of residence is valid for a
period of three years or such longer
period as the Internal Revenue Service
may prescribe. The competent au-
thorities may agree to a different
procedure for certifying residence, in
which case such procedure shall govern
for payments made to a person claim-
ing to be a resident of the country with
which such an agreement is in effect.
(4)Documentary evidence establish-
ing residence in the treaty country.
Generally, documentary evidence used
to establish residence in a treaty
country must include the name, ad-
dress, and photograph of the person
seeking to prove residence, must be an
official document issued by an author-
ized governmental body (i.e., a govern-
m e n t o r a g e n c y t h e r e o f , o r a
municipality), and must have been
issued no more than three years prior
to presentation to the withholding
agent. A document older than three
years may be relied upon as proof of
residence only if it is accompanied by
additional evidence of the person’s
residence in the treaty country (i.e., a
bank statement, utility or medical bills).
Documentary evidence must be in the
form of original documents or a cer-
tified copy thereof.
(d)Joint owners. In the case of a
payment to joint owners, all owners
must furnish a withholding certificate
or, if applicable, documentary evidence
or a certificate of residence. The
applicable rate of tax on a payment of
income to joint owners shall be the
highest applicable rate.
(e)Related party dividends under
certain treaties. Income tax treaties
between the United States and Austria,
Denmark, Ireland, and Switzerland re-
duce the rate of tax on dividends
between related corporations to 5 per-
cent subject to the condition that the
relationship between the domestic and
foreign corporations was not arranged
or maintained for the purpose of
securing the reduced rate. A domestic
corporation that makes a distribution to
a resident of one of these countries
may treat this condition as satisfied if,
prior to the payment, a request has
been made to the Internal Revenue
Service for a private letter ruling
determining that the relationship be-
tween the corporation and the share-
holder was not arranged or maintained
for such purpose and the Service has
either issued a favorable ruling (and the
ruling has not been revoked) or is
considering the ruling request.
(f)Effective date—(1) General rule.
This section applies to payments of
income made after December 31, 1997.
(2)Transition rules. For purposes of
this section, a withholding agent that
holds a valid Form 1001 or 8233 on
the date that is 60 days after these
regulations are published as final reg-
ulations in the Federal Register may
treat it as a valid withholding certifi-
cate until its validity expires under
applicable provisions as in effect on
April 22, 1996. In addition, the docu-
mentation requirements for dividends
on stock traded on a U.S. established
financial market described in paragraph
(b)(2) of this section shall apply only
to accounts established after the date
that is 60 days after these regulations
are published as final regulations in the
Federal Register. For accounts estab-
lished on or before that date, the

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documentation requirements under this
section shall apply to payments made
after December 31, 1999.
Par. 13. Section 1.1441–7 is revised
to read as follows:
§1.1441–7 General provisions relating
to withholding agents.
(a)Withholding agent defined. For
purposes of chapter 3 of the Internal
Revenue Code, the term withholding
agent means any person, U.S. or
foreign, that has the control, receipt,
custody, disposal, or payment of an
item of income of a foreign person
subject to withholding. See §1.1441–
1(b) (dealing with general rules of
withholding) and §1.1441–1(f) (dealing
with presumptions of U.S. or foreign
status in the absence of required
d o c u m e n t a t i o n ) f o r d e t e r m i n i n g
whether a payment is considered made
to a foreign person. Any person who
meets the definition of a withholding
agent is required to deposit any tax
withheld under §1.1461–1(a) and to
make the returns prescribed by
§1.1461–1(b) and (c). When several
persons qualify as withholding agents
with respect to a single payment, only
one tax is required to be withheld and
only one return (on Form 1042, as
required under §1.1461–1(b)), is re-
quired to be made.
(b)Standards of knowledge—(1) In
general. If a withholding agent does
not withhold the full amount even
though it has actual knowledge or
reason to know that a claim of U.S.
status or of a reduced rate of tax under
section 1441 is incorrect, the withhold-
ing agent may be liable for tax,
interest, and penalties under sections
1461 and 1463 and the regulations
under those sections. A withholding
agent that has received notification by
the Internal Revenue Service that a
claim of U.S. status or of a reduced
rate is incorrect has actual knowledge
beginning on the date that is 30
calendar days after the date the notice
is received. A withholding agent that
fails to act in accordance with the
presumptions set forth in §1.1441–1(f)
may be liable for tax, interest, and
penalties. See §1.1441–1(f)(5).
(2)Reason to know—(i) In general.
A withholding agent will be considered
to have reason to know if it has suf-
ficient knowledge of the underlying
facts such that a reasonably prudent
person in the position of the withhold-
ing agent would question the claim
made or if the withholding agent has
actual knowledge of sufficient facts to
put it on notice that the claim is false.
(ii)Limits on duty to inquire in
certain cases. In the case of portfolio
interest, interest on deposits described
in section 871(i)(2)(A), and dividends
described in §1.1441–6(b)(2), a with-
holding agent’s duty to inquire with
respect to a beneficial owner withhold-
ing certificate is limited to the circum-
stances listed in this paragraph
(b)(2)(ii). Where one or more of the
circumstances described in this para-
graph (b)(2)(ii) exist for a withholding
certificate, the withholding agent may
rely on the withholding certificate only
after documentation is provided in
support of the claim of foreign status,
or reduced rate of tax under a tax
treaty, and the certificate is corrected,
if appropriate.
(A)The permanent residence address
on the withholding certificate is an
address in the United States.
(B)The payment is directed to a
P.O. Box, an in-care-of address, a U.S.
address, or an account with a financial
institution in the United States.
(C)In the case of income for which
benefits are claimed under an income
tax treaty, the permanent residence
address or mailing address is not in the
corresponding treaty country.
(D)The beneficial owner notifies the
withholding agent of an address for
mailing purposes and that address is—
(1) Different from the permanent
residence or mailing address stated on
the withholding certificate provided to
the withholding agent by or for the
beneficial owner; and
(2) The address is one that is de-
scribed in paragraph (b)(2)(ii)(A), (B),
or (C) of this section.
(E)Such other circumstances as the
Internal Revenue Service may prescribe
in published guidance.
(3)Universal accounts. A withhold-
ing agent that is a financial institution
dealing with the public and with which
a customer may open an account shall
apply the rules of this paragraph (b) on
an account-by-account basis, except to
the extent it uses a universal account
system that uses a customer identifier
that can be used to retrieve sys-
temically any other accounts of the
customer. See §31.3406(c)–1(c)(3)(ii)
and (c)(3)(iii)(C) of this chapter.
(c)Authorized agent—(1) In gen-
eral. The acts of an agent of a
withholding agent (including the receipt
of withholding certificates, the payment
of amounts of income subject to
withholding, and the deposit of tax
withheld) shall be imputed to the
withholding agent on whose behalf it is
acting. However, if the agent is a
foreign person, a withholding agent
that is a U.S. person may treat the acts
of the foreign agent as its own for
purposes of determining whether it has
complied with the provisions of this
section, but only if the agent is an
authorized foreign agent, as defined in
paragraph (c)(2) of this section.
(2)Authorized foreign agent. An
agent is an authorized foreign agent
only if—
(i)There is a written agreement
between the withholding agent and the
foreign person acting as agent;
(ii)The notification procedures de-
scribed in paragraph (c)(3) of this
section have been complied with;
(iii)Books and records and relevant
personnel of the foreign agent are
available for examination by the Inter-
nal Revenue Service in order to evalu-
ate the withholding agent’s compliance
with the provisions of chapter 3,
section 3406, and chapter 61 of the
Internal Revenue Code, and the regula-
tions under those provisions; for this
purpose, the foreign agent’s actual
knowledge or reason to know shall be
imputed to the U.S. withholding agent;
and
(iv)The U.S. withholding agent re-
mains fully liable for the acts of its
agent and does not assert any of the
defenses that may otherwise be avail-
able under common law principles of
agency in order to avoid tax liability
under the Internal Revenue Code.
(3)Notification. A withholding agent
that appoints an authorized agent to act
on its behalf for purposes of §1.871–
14(c)(2), for the withholding provisions
of chapter 3 of the Internal Revenue
Code, or for the reporting provisions of
chapter 61 of the Internal Revenue
Code, is required to file notice of such
appointment with the Office of the
Assistant Commissioner (International).
Such notice shall be filed before the
first payment for which the authorized
agent acts as such.
(4)Liability of U.S. withholding
agent. A withholding agent acting
through an authorized foreign agent is
liable for any failure of the agent, such
as failure to withhold an amount or

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make payment of tax, in the same
manner and to the same extent as if the
agent’s failure had been the failure of
the U.S. withholding agent. Such lia-
bility shall exist irrespective of the fact
that the authorized foreign agent is also
a withholding agent and is itself
separately liable for failure to comply
with the provisions of the regulations
under sections 1441, 1442, or 1443.
However, liability for tax, interest, and
penalties shall not be collected more
than once.
(5)Filing of returns. See §1.1461–
1(b)(2)(iii) and (c)(4)(iii) regarding re-
turns required to be made where a U.S.
withholding agent acts through an
authorized foreign agent.
(d)United States obligations. If the
United States is a withholding agent for
an item of interest, including original
issue discount, on obligations of the
United States or of any agency or in-
strumentality thereof, the withholding
obligation of the United States is
assumed and discharged by—
(1)The Commissioner of the Public
Debt, for interest paid by checks issued
through the Bureau of the Public Debt;
(2)The Treasurer of the United
States, for interest paid by him or her,
whether by check or otherwise;
(3)Each Federal Reserve Bank, for
interest paid by it, whether by check or
otherwise; or
(4)Such other person as may be
designated by the Internal Revenue
Service.
(e)Assumed obligations. If, in con-
nection with the sale of a corporation’s
property, payment of the bonds or other
obligations of the corporation is as-
sumed by the assignee, the assignee,
whether an individual, partnership, or
corporation, shall be a withholding
agent to the extent amounts subject to
withholding tax are paid to a foreign
person. Thus, the assignee shall deduct
and withhold such taxes under
§1.1441–1 as would be required to be
withheld by the assignor had no such
sale or transfer been made.
(f)Conduit financing arrangements.
[Reserved]
(g)Effective date. This section ap-
plies to payments of income made after
December 31, 1997.
Par. 14. Section 1.1441–8T is
amended as follows:
1.The section heading is revised.
2.Paragraph (b) is revised.
3.Paragraph (c) is added.
The revisions and addition read as
follows:
§1.1441–8T Foreign government and
international organization exemption
from withholding (temporary).
******
(b)Statement claiming exemption.
Absent actual knowledge or reason to
know otherwise, the withholding agent
may rely upon a claim of exemption
made by the foreign government or
international organization, if, prior to
making the payment, the withholding
agent satisfies the requirements of
§1.1441–1(e)(1). For purposes of this
paragraph (b), a beneficial owner with-
holding certificate means a certificate
described in §1.1441–1(e)(2). A state-
ment on the withholding certificate that
the income is, or will be, exempt from
taxation under section 892 and the
regulations under that section will
satisfy the requirement in §1.1441–
1(e)(2)(ii) that the beneficial owner
state on the certificate the basis for the
claim of reduced rate.
(c)Effective date—(1) In general.
This section applies to payments of
income made after December 31, 1997.
(2)Transition rules. For purposes of
this section, a withholding agent that
holds a valid Form 8709 on the date
that is 60 days after these regulations
are published as final regulations in the
Federal Register may treat it as a valid
withholding certificate until its validity
expires under applicable provisions as
in effect on April 22, 1996.
Par. 15. Section 1.1441–9 is added to
read as follows.
§1.1441–9 Exemption from
withholding on exempt income of a
foreign tax-exempt organization and
foreign private foundations.
(a)Income not subject to tax under
section 511. No withholding of tax is
required under §1.1441–1 on income of
a foreign organization described in
section 501(c) of the Internal Revenue
Code that is not subject to the tax
imposed by section 511 of the Internal
Revenue Code and is exempt from tax
under section 501(a). See §1.1443–1
for withholding rules applicable to
foreign private foundations.
(b)Statement claiming exemption.
Absent actual knowledge or reason to
know otherwise, a withholding agent
may rely upon a claim of exemption by
the foreign tax-exempt organization if,
prior to making the payment, the with-
holding agent meets the requirements
of §1.1441–1(e)(1) (except that the
certificate must contains a taxpayer
identifying number). The requirement
in §1.1441–1(e)(2)(ii) that the benefi-
cial owner state on the certificate the
basis for the claim of reduced rate shall
be satisfied by the beneficial owner
certifying that the income is not, or
will not be, subject to tax under section
511 and that the Internal Revenue
Service has issued a determination
letter (and the date thereof). If the
organization cannot certify that it has
been issued such a letter, it must
provide an opinion of counsel that it is
tax exempt under section 501(c).
(c)Effective date—(1) In general.
This section applies to payments of
income made after December 31, 1997.
(2)Transition rules. For purposes of
this section, a withholding agent that
holds a valid Form W–8, 1001 or 4224
on the date that is 60 days after the
date these regulations are published as
final regulations in the Federal Register
may treat it as a valid withholding
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
Par. 16. Sections 1.1442–1 and
1.1442–2 are revised to read as
follows:
§1.1442–1 Withholding of tax on
foreign corporations.
For regulations concerning the with-
holding of tax at source under section
1442 in the case of foreign corpora-
tions, see §§1.1441–1 through 1.1441–7
and 1.1441–9.
§1.1442–2 Exemption under a tax
treaty.
For regulations providing for a claim
of reduced withholding tax under sec-
tion 1442 by certain foreign corpora-
tions pursuant to the provisions of an
income tax treaty, see §1.1441–6.
Par. 17. Section 1.1442–3 is added to
read as follows:
§1.1442–3 Tax exempt income of a
foreign tax-exempt corporation.
For regulations providing for a claim
of exemption for income exempt from

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tax under section 501(a) of a foreign
tax-exempt corporation, see §1.1441–9.
See §1.1443–1 for withholding rules
applicable to foreign foundations.
§1.1443–1 [Amended]
Par. 18. Section 1.1443–1 is
amended by:
1.Amending the second sentence of
paragraph (b)(4)(i) by removing the
words ‘‘an affidavit of the foreign
organization or’’.
2.Amending the third sentence in
paragraph (b)(4)(i) by removing the
words ‘‘an affidavit or’’.
Par. 19. Section 1.1461–1 is revised
to read as follows:
§1.1461–1 Payment and returns of
tax withheld.
(a)Payment of withheld tax—(1)
Deposits of tax. Every withholding
agent who withholds tax pursuant to
chapter 3 of the Internal Revenue Code
shall deposit such amount of tax with a
Federal reserve bank or authorized
financial institution as provided in
§1.6302–2(a). If for any reason the
total amount of tax required to be
returned for any calendar year pursuant
to paragraph (b) of this section has not
been deposited pursuant to §1.6302–2,
the withholding agent shall pay the
balance of tax due for such year at
such place as the Internal Revenue
Service shall specify. The tax shall be
paid when filing the return required
under paragraph (b)(2) of this section
for such year, unless the Internal
Revenue Service specifies otherwise.
See paragraph (b)(2) of this section
when there are multiple withholding
agents.
(2)Penalties for failure to pay tax.
For penalties and additions to the tax
for failure to timely pay the tax
required to be withheld under chapter 3
of the Internal Revenue Code, see
sections 6656, 6672, and 7202 and the
regulations under those sections.
(b)Income tax return—(1) General
rule. A withholding agent shall make
an income tax return on Form 1042 (or
such other form as the Internal Reve-
nue Service may prescribe) for income
paid during the preceding calendar year
that the withholding agent is required
to report on an information return on
Form 1042–S (or such other form as
the Internal Revenue Service may
prescribe) under paragraph (c)(1) of
this section. See section 6011 and
§1.6011–1(c). The withholding agent
must file the return on or before
February 28 of the calendar year
following the year in which the income
was paid. The return must show the
aggregate amount of income paid and
tax withheld required to be reported on
all the Forms 1042–S for the preceding
calendar year by the withholding agent,
in addition to such information as is
required by the form and accompanying
instructions. Withholding certificates or
other statements or information pro-
vided to a withholding agent are not
required to be attached to the return. A
return must be filed under this para-
graph (b)(1) even though no tax was
required to be withheld during the
preceding calendar year. The withhold-
ing agent must retain a copy of Form
1042 for the applicable statute of
limitations on assessments and collec-
tion with respect to the items of
income required to be reported on the
Form 1042. See section 6501 and the
regulations thereunder for the applica-
ble statute of limitations. Adjustments
to the total amount of tax withheld, as
described in §1.1461–2, shall be stated
on the return as prescribed by the form
and accompanying instructions.
(2)Multiple withholding agents—(i)
General rule. Except as otherwise
provided in paragraph (b)(2)(ii) and
(iii) of this section, no Form 1042 is
required to be filed under paragraph
(b)(1) of this section if a return is filed
by another withholding agent reporting
the same income in compliance with
the provisions of this paragraph (b) and
any remaining tax due is paid with the
return as required under paragraph (a)
of this section.
(ii)Payment to a qualified inter-
mediary. A U.S. withholding agent
making a payment to a qualified
intermediary (as defined in §1.1441–
1(e)(5)(ii)) must file a return under
paragraph (b)(1) of this section, regard-
less of whether the qualified intermedi-
ary assumes primary withholding re-
sponsibility for the payment, as
described in §1.1441–1(e)(5)(iv) and
regardless of whether the qualified
intermediary is also required to file a
return under the terms of its agreement
with the Internal Revenue Service. A
qualified intermediary’s agreement with
the Internal Revenue Service shall
specify the extent, if any, to which the
intermediary is subject to filing require-
ments under this section.
(iii)Payment to or through an au-
thorized foreign agent. Both the U.S.
withholding agent making a payment to
or through an authorized foreign agent
(defined in §1.1441–7(c)) and the au-
thorized foreign agent are required to
file a return under paragraph (b)(1) of
this section.
(3)Amended returns. An amended
return may be filed on a Form 1042X
or such other form as the Internal
Revenue Service may prescribe. An
amended return must include such
information as the form and accom-
panying instructions shall require, in-
cluding, with respect to any in-
formation 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.
(c)Information returns—(1) Filing
requirement—(i) In general. A with-
holding agent must make an informa-
tion return on Form 1042–S (or such
other form as the Internal Revenue
Service may prescribe) to report the
items of income specified in paragraph
(c)(2) of this section that were paid
during the preceding calendar year.
One Form 1042–S shall be prepared for
each beneficial owner (except as other-
wise provided in paragraph (c)(4) of
this section regarding multiple with-
holding agents). The Form 1042–S
shall be prepared in such manner as the
form and accompanying instructions
prescribe. One copy of the Form 1042–
S shall be filed with the Internal
Revenue Service on or before February
28 of the calendar year following the
year in which the item of income was
paid. It shall be filed with a transmittal
form as provided in the instructions to
the Form 1042–S and the transmittal
form. Withholding certificates or other
statements or documentation provided
to a withholding agent are not required
to be attached to the information
return. Another copy of the Form
1042–S shall be furnished to the payee
on or before February 28 of the
calendar year following the year in
which the item of income was paid
after the calendar year of payment. The
withholding agent shall retain a copy of
each Form 1042–S for the statute of
limitations on assessment and collec-
tion applicable to the Form 1042 to
which the Form 1042–S relates.
(ii)Joint owners. In the case of joint
owners, a single Form 1042–S may be
prepared. However, any one of the

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owners may request that it be furnished
its own Form 1042–S. Where more
than one Form 1042–S is issued with
respect to a single payment to joint
owners, the aggregate amount of in-
come and tax withheld reported on the
Forms 1042–S cannot exceed the
amount of income to the joint owners
and tax withheld thereon. If a single
Form 1042–S is prepared, the form
shall state the name of only one owner
and that name shall be that of the
person whose status the withholding
agent relied upon to determine the
applicable rate of withholding tax.
(2)Income subject to reporting—(i)
In general. Subject to the exceptions in
paragraph (c)(2)(ii) of this section, the
items of income required to be reported
on a Form 1042–S are income subject
to withholding (as defined in §1.1441–
2(a)), income on a notional principal
contract described in §1.1441–4(a)(3),
and amounts described in sections 6041
through 6050P that are paid to a
foreign person and are not exempt from
reporting under sections 6041 through
6050P or the regulations under those
sections.
(ii)Exceptions to reporting. The
items of income listed in this paragraph
(c)(2)(ii) are not required to be reported
on a Form 1042–S.
(A)Any item of income paid by a
partnership, trust or estate to the extent
the item of income is required to be
reported by the partnership, trust or
estate under section 6031 or 6034.
(B)Any item required to be reported
on a Form W–2, including an item
required to be shown on Form W–2
solely by reason of §1.6041–2 (relating
to return of information as to payments
to employees) or §1.6052–1 (relating to
information regarding payment of
wages in the form of group-term life
insurance).
(C)Any item of income required to
be reported on Form 1099, and such
other forms prescribed under sections
6041 through 6050P and the regula-
tions under these sections.
(D)Any item of income paid to
foreign governments, international or-
ganizations, and foreign central banks
of issue that are exempt from tax under
section 892 or section 895.
(E)Income required to be reported
on Form 8288 (U.S. Withholding Tax
Return for Dispositions by Foreign
Persons of U.S. Real Property Interests)
or Form 8804 (Annual Return for
Partnership Withholding Tax (Section
1446)).
(F)Income on deposits described in
section 871(i)(2)(A), unless actually
subject to withholding or specifically
subject to reporting under section 6049
and the regulations under that section.
(G)Interest on a foreign-targeted
registered obligation described in
§1.871–14(e), except as otherwise pro-
vided in §1.871–14(e)(4)(ii)(A).
(3) Required information. Form
1042–S shall include such information
as is required by the form and accom-
panying instructions. The information
shall be based upon the information
provided by or on behalf of the bene-
ficial owner (e.g., a beneficial owner
withholding certificate or documentary
evidence), as corrected and supple-
mented based on the agent’s actual
knowledge or reason to know. In
particular, the Form 1042–S must in-
clude the information described in this
paragraph (c)(3), if applicable.
(i)The name, address, and taxpayer
identifying number of the withholding
agent.
(ii)A description of each category
of income paid (e.g., interest, divi-
dends, royalties, etc.) and the aggregate
amount in each category expressed in
U.S. dollars.
(iii)The rate of withholding applied
and, if applicable, the basis for with-
holding at a reduced rate.
(iv)The name, permanent residence
address, and taxpayer identifying num-
ber (if required under §1.1441–1(e)(4)-
(vii) to be shown on a beneficial owner
withholding certificate or actually
known to the withholding agent making
the return) of the beneficial owner.
(4)Multiple withholding agents—(i)
In general. Except as otherwise pro-
vided in paragraph (c)(4)(ii), (iii), and
(v) of this section, no information
return is required to be filed under
paragraph (c)(1)(i) of this section if a
return is filed by another withholding
agent reporting the same income in
compliance with the provisions of this
paragraph (c).
(ii)Payment to a qualified inter-
mediary. A withholding agent making a
payment to a qualified intermediary
(defined in §1.1441–1(e)(5)(ii)) must
report the payment but may do so on a
single Form 1042–S.
(iii)Payment to an authorized for-
eign agent—(A) Filing obligation of
foreign authorized agent. An author-
ized foreign agent (as described in
§1.1441–7(c)(2)) is subject to the filing
requirements described in paragraph
(c)(1)(i) of this section because it is a
withholding agent. Therefore, to the
extent the U.S. withholding agent for
which it is acting is not reporting the
information required under this para-
graph (c), it must report the informa-
tion required to be reported under
paragraph (c)(3) or (c)(4)(vi) of this
section.
(B)Filing obligations of the U.S.
withholding agent. A U.S. withholding
agent making a payment to an author-
ized foreign agent is exempted from
the requirement under paragraph (c)(4)-
(iv) of this section to make a return on
Form 1042–S for each beneficial owner
and may, instead, make a single Form
1042–S to report the payment made to
the authorized foreign agent. The ex-
emption in this paragraph (c)(4)(iii)(B)
shall apply only to the extent the
authorized foreign agent complies with
the filing requirements under paragraph
(c)(4)(iii)(A) of this section.
(iv)Payment to other foreign person
not acting for its own account. Pay-
ment of an item of income to an agent,
nominee or representative for the bene-
fit of other persons in respect of whom
Forms 1042–S are required may not be
shown on a single Form 1042–S but
must be identified on separate Forms
1042–S for each beneficial owner if
such agent, nominee, or representative
is a foreign person and is not a
qualified intermediary or an authorized
foreign agent.
(v)Payment to a foreign part-
nership. Payment of an item of income
to a foreign partnership that is not a
qualified intermediary and acts for its
own account may not be shown on a
single Form 1042–S but must be
identified on separate Forms 1042–S
for each beneficial owner (or partner
that is a qualified intermediary or
authorized foreign agent).
(vi)Required information. An infor-
mation return on a Form 1042–S by a
withholding agent reporting payments
to an intermediary or to a foreign
partnership described in paragraph
(c)(4)(v) of this section must contain
the information contained in this para-
graph (c)(4)(vi). The information on
the Form 1042–S must be based upon
the withholding certificates furnished
by the payee, as corrected and supple-
mented by the withholding agent’s
actual knowledge or reason to know.

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(A)The name, address, and taxpayer
identifying number of the withholding
agent.
(B)A description of each category
of income paid (e.g., interest, divi-
dends, royalties, etc.) and the aggregate
amount in each category expressed in
U.S. dollars.
(C)The rate of withholding applied.
(D)The basis for not withholding or
withholding at a reduced rate.
(E)The name, address, and taxpayer
identifying number of the payee.
(F)In the case of a payment to a
partnership acting for its own account,
the name, address, and taxpayer identi-
fying number (if required under
§1.1441–1(e)(4)(vii) to be stated on the
withholding certificates or actually
known to the withholding agent) of the
person for whom a Form 1042–S is re-
quired to be prepared pursuant to the
provisions of paragraph (c)(4)(v) of this
section.
(5)Magnetic media reporting. A
withholding agent that makes 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 of this chapter for re-
quirements applicable to a withholding
agent that files Forms 1042–S on
magnetic media and publications of the
Internal Revenue Service relating to
magnetic media filing.
(d)Report of taxpayer identifying
numbers. When so required or permit-
ted under procedures issued by the
Internal Revenue Service, a withhold-
ing agent may attach to the Form 1042
a list of all the taxpayer identifying
numbers that have been furnished to
the withholding agent and upon which
the withholding agent has relied to
grant a reduced rate of withholding and
that are not otherwise required to be
reported on a Form 1042–S under the
provisions of this section.
(e)Indemnification of withholding
agent. A withholding agent is indem-
nified against the claims and demands
of any person for the amount of any
tax it deducts and withholds in accord-
ance with the provisions of chapter 3
of the Internal Revenue Code and the
regulations under that chapter. A with-
holding agent that withholds based on a
reasonable belief that such withholding
is required under chapter 3 of the
Internal Revenue Code is treated for
purposes of section 1461 and this
paragraph (e) as having withheld tax in
accordance with the provisions of
chapter 3 of the Internal Revenue Code
and the regulations under that chapter.
In addition, a withholding agent is
indemnified against the claims and
demands of any person for the amount
of any payments made in accordance
with the grace period provisions set
forth in §1.1441–1(f)(2)(ii)(A). This
paragraph (e) does not apply to relieve
a withholding agent from tax liability
under chapter 3 of the Internal Revenue
Code.
(f)Amounts paid not constituting
gross income. Any amount withheld in
accordance with §§1.1441–3(b)(1) and
1.1441–3(d) shall be returned and paid
in accordance with this section, even
though the item or amount paid to the
beneficial owner may not constitute
gross income in whole or in part. For
this purpose, a reference in this section
to an item or amount of income shall,
where appropriate, be deemed to refer to
the amount subject to withholding under
§§1.1441–3(b)(1) and 1.1441–3(d).
(g)Extensions of time for requests
made for calendar year beginning after
the date of publication of these regula-
tions as final regulations in the Federal
Register—(1) Extension of time to file
Form 1042. The Internal Revenue
Service may grant an extension of time
in which to file a Form 1042. Form
2758, Application for Extension of
Time to File Certain Excise, Income,
Information, and Other Returns, or
such other form as the Internal Reve-
nue Service may prescribe, must be
used to request an extension of time.
The request must contain a statement
of the reasons for requesting the
extension. The request must be mailed
or delivered not later than February 28
of the year following the end of the
calendar year for which the return will
be filed.
(2)Extension of time to file Form
1042–S. The Internal Revenue Service
may grant an extension of time in
which to file Form 1042–S. Form 8809,
Request for Extension of Time to File
Information Returns, or such other
form as the Internal Revenue Service
may prescribe, must be used to request
an extension of time. The request must
contain a statement of the reasons for
requesting the extension. The request
must be mailed or delivered not later
than February 28 of the year following
the calendar year for which the return
will be filed.
(3)Extension of time to furnish
Forms 1042–S. The Internal Revenue
Service may grant an extension of time
in which to furnish Forms 1042–S to
beneficial owners or intermediaries.
Form 8809, request for Extension of
Time to File Information Returns, or
such other form as the Internal Reve-
nue Service may prescribe, must be
used to request an extension of time.
The request must contain the withhold-
ing agent’s name and address, the
withholding agent’s taxpayer identify-
ing number, the type of statement and a
statement of the reasons for requesting
the extension. The request must be
signed by the withholding agent or a
person who is duly authorized to sign a
return, statement, or other document.
The request must be mailed or deliv-
ered not later than February 28 of the
year following the end of the calendar
year for which the statement will be
furnished.
(h)Penalties. For penalties and addi-
tions to the tax for failure to file
returns in accordance with this section,
see sections 6651, 6662, 6663, 6721,
6722, 6723, 6724(c), 7201, 7203, and
the regulations under those sections.
(i)Effective date. This section shall
apply to returns required for payments
made after December 31, 1997.
Par. 20. Section 1.1461–2 is revised
to read as follows:
§1.1461–2 Adjustments for
overwithholding or underwithholding
of tax.
(a)Adjustments of overwithheld
tax—(1) In general. A withholding
agent that has overwithheld under
chapter 3 of the Internal Revenue Code
and made a deposit of that tax as
provided in §1.6302–2(a) may adjust
the overwithheld amount either pur-
suant to the reimbursement procedure
described in paragraph (a)(2) of this
section or pursuant to the set-off
procedure described in paragraph (a)(3)
of this section. Adjustments under this
paragraph (a) may only be made within
the time prescribed under paragraph
(a)(2) or (3) of this section. After such
time, an adjustment to the amount
overwithheld can only be claimed by
the beneficial owner with the Internal
Revenue Service pursuant to the proce-
dures described in chapter 65 of the
Internal Revenue Code. For purposes of
this section, the term overwithholding
means any amount actually withheld
(determined before application of the
adjustment procedures under this sec-

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tion) from an item of income pursuant
to chapter 3 of the Internal Revenue
Code in excess of the actual tax
liability due, regardless of whether
such overwithholding was in error or
appeared correct at the time it
occurred.
(2)Reimbursement of tax—(i) Gen-
eral rule. Under the reimbursement
procedure, the withholding agent may
repay the beneficial owner for the
amount overwithheld by reducing, by
the amount of tax actually repaid, 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. 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 withholding agent states, on
a timely filed (not including exten-
sions) Form 1042–S for the calendar
year of overwithholding, the amount of
tax withheld and the amount of any
actual repayment; and
(B)The withholding agent states on
a timely filed (not including exten-
sions) 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 bene-
ficial owner is repaid an amount of
withholding tax under the provisions of
this paragraph (a)(2), 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 or such receipt to
the beneficial owner. 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.
(3)Set-offs. Under the set-off proce-
dure, the withholding agent may repay
the beneficial owner by applying the
amount overwithheld against any
amount which otherwise would be re-
quired under chapter 3 of the Internal
Revenue Code to be withheld from in-
come paid by the withholding agent to
such person before the earlier of the
due date 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 Internal Revenue
Service. 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 with-
held, the reduced amount shall be
considered the amount required to be
withheld from such income under
chapter 3 of the Internal Revenue
Code.
(4)Examples. The principles of this
paragraph (a) are illustrated by the
following examples:
Example 1. (i) N is a nonresident alien
individual who is a resident of the United
Kingdom. In December 1997, a domestic corpo-
ration C pays a dividend of $100 to N, at which
time C Corporation withholds $30 and remits the
balance of $70 to N. On February 10, 1998, prior
to the time that C files its Form 1042, N advises
C Corporation that, pursuant to the income tax
convention with the United Kingdom, only $15
tax should have been withheld from the $100
dividend and requests reimbursement of the $15
that was erroneously withheld. Although C
Corporation has already deposited the $30 that
was withheld, as required by §1.6302–2(a)(1)(iv),
such corporation repays N in the amount of $15.
(ii)During 1997, C Corporation makes no
other payments upon which tax is required to be
withheld under chapter 3 of the Internal Revenue
Code; accordingly, its return on Form 1042 for
such year, which is filed on February 28, 1998,
shows total tax withheld of $30, an adjusted total
tax withheld of $15, and $30 previously paid for
such year. Pursuant to §1.6414–1(b), C Corpora-
tion claims credit for the overpayment of $15
shown on the Form 1042 for 1997. Accordingly,
it is permitted to reduce by $15 any deposit
required by §1.6302–2 to be made of tax
withheld during the calendar year 1998. The
Form 1042–S required to be filed by C
Corporation with respect to the dividend of $100
paid to N in 1997 is required to show tax
withheld of $30 and tax released of $15.
(iii)During 1998, C Corporation is required to
withhold $200 under chapter 3 of the Internal
Revenue Code, all of which is withheld in June
of that year. Pursuant to §1.6302–2(a)(1)(iii), C
Corporation deposits the amount of $185 on July
15, 1998, that is, $200 less the $15 for which
credit is claimed on the Form 1042 for 1997. On
February 28, 1999, C Corporation files its return
on Form 1042 for calendar year 1998, which
shows total tax withheld of $200, $185 pre-
viously deposited by C Corporation, and $15
allowable credit.
Example 2. The facts are the same as in
Example 1 except that paragraph (iii) of Example
1 does not apply and C Corporation is required
to deposit on a quarter-monthly basis the tax
withheld under chapter 3 of the Internal Revenue
Code. C Corporation withholds tax of $100
between February 8 and February 15, 1998, and
complies with the quarter-monthly deposit re-
quirement of §1.6302–2(a)(1)(ii) by depositing
$75 [($100 3 90 percent) less $15] of the
withheld tax within 3 banking days after
February 15, 1998, and by depositing $10 [($100
– $15) less $75] within 3 banking days after
March 15, 1998.
(b)Withholding of additional tax
when underwithholding occurs. A with-
holding agent may withhold the tax
that should have been withheld from
previous payments from future pay-
ments made to a beneficial owner.
Such additional withholding of tax may
only be made from payments made
before the date that the Form 1042 is
required to be filed (not including
extensions). See §1.6302–2 for making
deposits of tax or §1.1461–1(a) for
making payment of the balance of tax
due for a calendar year.
(c)Definition. For purposes of this
section, the term payment period means
the period for which the withholding
agent is required by §1.6302–2(a)(1) to
make a deposit of tax withheld under
chapter 3 of the Internal Revenue
Code.
(d)Effective date. This section ap-
plies to payments of income made after
December 31, 1997.
§§1.1461–3 and 1.1461–4 [Removed]
Par. 21. Sections 1.1461–3 and
1.1461–4 are removed.
Par. 22. Section 1.1462–1 is
amended by:
1.Revising paragraph (a).
2.Adding paragraph (c).
3.Removing the OMB parenthetical
and the authority citation at the end of
the section.
The revision and addition read as
follows:
§1.1462–1 Withheld tax as credit to
recipient of income.
(a)Creditable tax. The entire
amount of the income from which the
tax is required to be withheld (includ-
ing amounts calculated under the gross-
up formula in §1.1441–3(e)(3)) shall be
included in gross income in the return
required to be made by the beneficial
owner of the income, without deduction
for the amount required to be withheld,
but the tax so withheld shall be al-
lowed as a credit against the total
income tax computed in the beneficial
owner’s return.
******
(c)Effective date. This section ap-
plies to payments of income made after
December 31, 1997.
Par. 23. Section 1.1463–1 is revised
to read as follows:

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§1.1463–1 Tax paid by recipient of
income.
(a)Tax paid. If the tax required to
be withheld under chapter 3 of the
Internal Revenue Code is paid by the
beneficial owner of the income or by
the withholding agent, it shall not be
re-collected from the other, regardless
of the original liability therefor. How-
ever, this section does not relieve the
person that did not withhold tax from
liability for interest or any penalties or
additions to tax otherwise applicable.
(b)Effective date. This section ap-
plies to failures to withhold occurring
after December 31, 1989.
Par. 24. Section 1.6041–1, the
amendments to paragraph (a)(1) as
proposed in project number INTL–52–
86 published on February 29, 1988, at
53 FR 5993, are withdrawn.
Par. 25. Section 1.6041–1 is
amended by:
1.Removing paragraph (a)(1)(iii).
2.Redesignating paragraphs (a)(1)
introductory text and (a)(1)(i) as para-
graphs (a)(1)(i) introductory text and
(a)(1)(i)(A).
3.Adding a heading for paragraph
(a)(1).
4.Amending newly designated para-
graph (a)(1)(i)(A) by adding the word
‘‘or’’ at the end of the paragraph.
5.Redesignating paragraph (a)(1)(ii)
as paragraph (a)(1)(i)(B) and removing
the language ‘‘; or’’ at the end of the
paragraph and adding a period in its
place.
6.Designating the concluding text
immediately following newly desig-
nated paragraph (a)(1)(i)(B) as para-
graph (a)(1)(ii).
7.Removing the first sentence of
newly designated paragraph (a)(1)(ii)
and adding two new sentences in its
place.
8.Adding paragraph (d)(5).
The revisions and additions read as
follows:
§1.6041–1 Return of information as
to payments of $600 or more
(a)General rule—(1) Information
returns required—(i) ** *
(ii)The payments described in para-
graphs (a)(1)(i)(A) and (B) of this
section shall not include any payments
with respect to which a statement is
required by, or may be required under
authority of section 6042(a) (relating to
dividends); section 6043(a)(2) (relating
to distributions in liquidation); section
6044(a) (relating to patronage divi-
dends); section 6045 (relating to bro-
kers’ transactions with customers); sec-
tion 6049(a)(1) and (a)(2) (relating to
interest); section 6050N(a) (relating to
royalties); or section 6050P(a) or (b)
(relating to cancellation of indebted-
ness). In addition, the payments de-
scribed in paragraphs (a)(1)(i)(A) and
(B) of this section shall not include
amounts excepted from the definition of
dividends under section 6042(b)(2) and
§1.6042–3(b)(1), amounts described in
section 6044(b), amounts excepted from
reporting under §1.6045–1(g)(1),
amounts excepted from the definition of
interest under section 6049(b)(2)(C) or
(D), §1.6049–4(c)), or §1.6049–5(b)(6)
through (14). ** *
******
(d) * * *
(5)Amounts paid after December
31, 1997, with respect to notional
principal contracts referred to in
§1.1441–4(a)(3) that the payor or mid-
dleman may treat as paid to a benefi-
cial owner that is a foreign person and
that are not described in §1.6041–
4(a)(2) or (4) shall be reported on a
Form 1042 and 1042–S in accordance
with §1.1461–1(b) and (c), whether or
not effectively connected with the
conduct of a trade or business in the
United States. Although reportable,
amounts described in this paragraph
(d)(5) are not subject to backup with-
holding under section 3406 if paid
outside the United States. See
31.3406(g)–(1)(e) of this chapter.
******
Par. 26. In §1.6041–3, paragraph (q),
as proposed to be added in project
number LR–3–87 on June 9, 1988, at
53 FR 21694, is withdrawn.
Par. 27. Section 1.6041–3 is
amended by:
1.Revising the introductory text of
the section.
2.Revising paragraph (a).
3.Adding paragraph (q).
The addition and revisions read as
follows:
§1.6041–3 Payments for which no
return of information is required
under section 6041.
Returns of information are not re-
quired under section 6041 and
§§1.6041–1 and 1.6041–2 for payments
described in paragraphs (a) through (q)
of this section. See §1.6041–4 for re-
porting exemptions regarding foreign-
related items.
(a)Payments of income required to
be reported on Forms 1120–S, 941, W–
2, and W–3, (however, see §1.6041–2
with respect to Forms W–2 and W–3);
******
(q)Payments to individuals as schol-
arships or fellowship grants, as defined
in §1.117–6(c)(3). This exception does
not apply to any amount of a scholar-
ship or fellowship grant that represents
payment for services, as defined in
§1.117–6(d)(2). See §1.1461–1(c) for
applicable reporting requirements with
respect to amounts paid to foreign
persons.
Par. 28. Section 1.6041–4 is revised
to read as follows:
§1.6041–4 Foreign-related items.
(a)Exempted foreign-related items.
Returns of information are not required
under section 6041 and §§1.6041–1 and
1.6041–2 for payments of the items
described in paragraphs (a)(1) through
(4) of this section.
(1)Returns of information are not
required for payments that a payor or
middleman, as defined in paragraph
(b)(1) of this section, may treat as
made to a beneficial owner that is a
foreign person pursuant to §1.1441–
1(e)(1) and from which the payor or
middleman is either required to with-
hold tax under section 1441 or the
regulations under that section or would
be so required but for exceptions in the
regulations under section 1441 (such
as, for example, under §1.1441–4 (deal-
ing with effectively connected income)
or §1.1441–6 (dealing with a reduction
of rate of tax under an income tax
treaty)). See §1.1441–1(e)(4)(i) in the
case of payments to joint owners.
(2)Returns of information are not
required for payments of amounts from
sources outside the United States made
by a non-U.S. payor or non-U.S.
middleman (as defined in paragraph
(b)(2) of this section) outside the
United States. See §1.6049–5(e) for
circumstances in which a payment is
considered to be made outside the
United States.
(3)Returns of information are not
required for payments of amounts from

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sources outside the United States that a
payor or middleman may treat as paid
to a beneficial owner that is a foreign
person (because such person has fur-
nished a certificate described in
§1.6049–5(c)(1)). For purposes of this
paragraph (a)(3), the provisions in
§1.6049–5(c)(3) through (c)(6) (regard-
ing operating rules related to the
certificate of foreign status) shall apply.
(4)Returns of information are not
required for the period that the amounts
paid represent assets blocked as de-
scribed in §1.1441–2(e)(3). The exemp-
tion in this paragraph (a)(4) shall
terminate when payment is deemed to
occur in accordance with the provisions
of §1.1441–2(e)(3).
(b)Definitions—(1) Payor and mid-
dleman. For purposes of this section,
the term payor means any person who
is required to make an information
return with respect to any reportable
payment, as described in section
3406(b), including any middleman. The
term middleman means any person
whose legal relationship to the payor or
payee (including any other middleman)
is of a kind described in §1.6049–4(f)-
(4) (as proposed in project number
INTL–52–86 published in 1988–1 C.B.
892).
(2)Non-U.S. payor and non-U.S.
middleman. For purposes of this sec-
tion, the term non-U.S. payor or non-
U.S. middleman means a payor or
middleman other than—
(i)A person described in section
7701(a)(30);
(ii)The government of the United
States, the government of any State or
political subdivision thereof (or any
agency or instrumentality of any of the
foregoing);
(iii)A controlled foreign corporation
within the meaning of section 957(a);
or
(iv)A foreign person 50 percent or
more of the gross income of which,
from all sources for the three-year
period ending with the close of its
taxable year preceding the collection or
payment (or such part of such period as
the person has been in existence), was
effectively connected with the conduct
of trade or business within the United
States.
(c)Applicable presumptions. The
presumptions of §1.1441–1(f) shall ap-
ply for determining the payee’s status
where the required documentation is
lacking, incorrect, or unreliable.
(d)Joint owners. In the case of
amounts paid to joint owners for which
a certificate or documentation is re-
quired as a condition for being exempt
from reporting under this paragraph
(d), a payor or middleman must receive
from each joint owner the required
certification or documentation. Where
any one of the joint owners has not
furnished such certification or docu-
mentation, the payment is not exempt
from reporting under this section.
(e)Payee. For determination of
payee, see §1.1441–1(c)(3).
(f)Conversion into United States
dollars of amounts paid in foreign
currency. For rules concerning foreign
currency conversion, see §1.6049–4(d)-
(3)(i).
(g)Effective date—(1) General rule.
The provisions of this section apply to
payments made after December 31,
1997.
(2)Transition rules. A payor that
holds a valid Form W–8 on the date
that is 60 days after these regulations
are published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
Par. 29. Section 1.6041A–1 as pro-
posed to be added in project number
LR–214–82, published on January 7,
1986, at 51 FR 626, is amended by
adding a new paragraph (d)(3), to read
as follows:
§1.6041A–1 Returns regarding
payments of remuneration for services
and certain direct sales.
******
(d)Exceptions to return require-
ment. ** *
******
(3)Foreign transactions—(i) In gen-
eral. No return shall be required under
paragraph (a) of this section with
respect to payments described in this
paragraph (d)(3).
(A)Returns of information are not
required for payments of remuneration
for services that a payor or middleman,
as defined in paragraph (d)(3)(ii)(A) of
this section, may treat as made to a
beneficial owner that is a foreign
person pursuant to §1.1441–1(e)(1) and
from which the payor or middleman is
either required to withhold tax under
section 1441 or the regulations under
that section or would be so required
but for exceptions in the regulations
under section 1441 (such as, for
example, under §1.1441–4 (dealing
with effectively connected income) or
§1.1441–6 (dealing with a reduction of
rate of tax under an income tax
treaty)). See §1.1441–1(e)(4)(i) in the
case of payments to joint owners.
(B)Returns of information are not
required for payments of remuneration
for services and certain direct sales
from sources outside the United States
made outside the United States by a
non-U.S. payor or non-U.S. middleman
(as defined in paragraph (d)(3)(ii)(B) of
this section). See §1.6049–5(e) for
circumstances in which a payment is
considered to be made outside the
United States.
(C)Payments of services and certain
direct sales from sources outside the
United States that a payor or middle-
man may treat as paid to a beneficial
owner that is a foreign person (because
such person has furnished a certificate
described in §1.6049–5(c)(1)). For pur-
poses of this paragraph (d)(3)(i)(C), the
provisions in §1.6049–5(c)(3) through
(c)(6) (regarding operating rules related
to the certificate of foreign status) shall
apply. See §1.6041–1(d)(5) for report-
able payments made to foreign persons.
(D)Amounts paid for services and
certain direct sales for the period that
they represent assets blocked as de-
scribed in §1.1441–2(e)(3). The exemp-
tion in this paragraph (d)(3)(i)(D) shall
terminate when payment is deemed to
occur in accordance with the provisions
of §1.1441–2(e)(3).
(ii)Definitions—(A) Payor and mid-
dleman. For purposes of this section,
the term payor means any person who
is required to make an information
return with respect to any reportable
payment, as described in section
3406(b), including any middleman and
the term middleman means any person
whose legal relationship to the payor or
payee (including any other middleman)
is of a kind described in §1.6049–4(f)-
(4) (as proposed in project number
INTL–52–86 published in 1988–1 C.B.
892).
(B)Non-U.S. payor and non-U.S.
middleman. For purposes of this sec-
tion, the term non-U.S. payor or non-
U.S. middleman means a payor or
middleman other than—
(1) A person described in section
7701(a)(30);

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(2) The government of the United
States, the government of any State or
political subdivision thereof (or any
agency or instrumentality of any of the
foregoing);
(3) A controlled foreign corporation
within the meaning of section 957(a); or
(4) A foreign person 50 percent or
more of the gross income of which, from
all sources for the three-year period
ending with the close of its taxable year
preceding the collection or payment (or
such part of such period as the person
has been in existence), was effectively
connected with the conduct of trade or
business within the United States.
(C)Applicable presumptions. The
presumptions of §1.1441–1(f) shall ap-
ply for determining the payee’s status
where the required documentation is
lacking, incorrect, or unreliable.
(D)Joint owners. In the case of
amounts paid to joint owners for which
a certificate of documentation is re-
quired as a condition for being exempt
from reporting under this paragraph
(d)(3), the payor or middleman must
receive from each joint owner the
certification described in paragraph
(d)(3)(i)(A) or (C) of this section.
Where any one of the joint owners has
not furnished such certification, the
payment is not exempt from reporting
under this section unless described in
paragraph (d)(3)(i)(B) or (D) of this
section.
(E)Payee. For determination of
payee, see §1.1441–1(c)(3).
(iii)Effective date—(A) General
rule. The provisions of this paragraph
(d)(3) apply to payments made after
December 31, 1997.
(B)Transition rules. A payor that
holds a valid Form W–8 on a date that
is 60 days after these regulations are
published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
******
Par. 30. In §1.6042–3, paragraph (b),
as proposed to be revised in project
number INTL–52–86, published on
February 29, 1988 (53 FR 5995) is
amended by:
1.Removing paragraphs (b)(1) and
(b)(2).
2.Redesignating paragraphs (b)(3)
and (b)(4) as paragraphs (b)(1)(vii) and
(b)(1)(viii), respectively.
Par. 31. Section 1.6042–3 is
amended by:
1.Revising paragraph (a) introduc-
tory text.
2.Removing paragraph (b) introduc-
tory text.
3.Adding paragraph (b)(1) heading.
4.Revising paragraph (b)(1) intro-
ductory text.
5 . A d d i n g p a r a g r a p h s ( b ) ( 1 ) ( i )
through (b)(1)(vi).
6 . R e v i s i n g p a r a g r a p h s ( b ) ( 2 )
through (b)(4).
7.Adding paragraphs (b)(5) through
(b)(7).
The additions and revisions read as
follows:
§1.6042–3 Dividends subject to
reporting.
(a)In general. Except as provided in
paragraph (b) of this section, the term
dividend for purposes of this section
and §§1.6042–2 and 1.6042–4 means
the amounts described in paragraphs
(a)(1) and (2) of this section.
******
(b)Exceptions—(1) In general. Re-
turns of information are not required
under section 6042 and §§1.6042–2 and
1.6042–4 for amounts described in
paragraphs (b)(1)(i) through (viii) of
this section.
(i)Amounts paid by an insurance
company to a policyholder, other than a
dividend upon its capital stock.
(ii) Payments (however denomi-
nated) by a mutual savings bank,
savings and loan association, or similar
organization, in respect of deposits,
investment certificates, or withdrawable
or repurchasable shares. See, however,
section 6049 and the regulations under
that section for provisions requiring
reporting of these payments.
(iii)Distributions or payments from
sources within the United States that a
payor or middleman (as defined in
paragraph (b)(2) of this section) may
treat as made to a beneficial owner that
is a foreign person pursuant to
§1.1441–1(e)(1) or, in the case of
dividends paid on stock traded on a
U.S. established financial market (as
defined in §1.1441–6(b)(2)), pursuant
to §1.1441–6(b)(2) or (3), or §1.6049–
5(c).
(iv)Distributions or payments from
sources outside the United States paid
outside the United States by a non-U.S.
payor or a non-U.S. middleman (as
defined in paragraph (b)(2)(ii) of this
section). See §1.6049–5(e) for circum-
stances in which a payment is consid-
ered to be made outside the United
States.
(v)Distributions or payments from
sources outside the United States that a
payor or middleman may treat as paid
to a beneficial owner that is a foreign
person (because such person has fur-
nished a certificate or documentary
evidence as required under §1.6049–
5(c)(1) or (2)). For purposes of this
paragraph (b)(1)(v), the provisions in
§1.6049–5(c)(3) through (c)(6) (regard-
ing operating rules related to the
certificate of foreign status) shall apply.
(vi)Distributions or payments for
the period that the amounts represent
assets blocked as described in §1.1441–
2(e)(3). The exemption in this para-
graph (b)(1)(vi) shall terminate when
payment is deemed to occur in accord-
ance with the rules of §1.1441–2(e)(3).
******
(2)Definitions—(i) Payor and mid-
dleman. For purposes of this section,
the term payor means any person who
is required to make an information
return with respect to any reportable
payment, as described in section
3406(b) (including any middleman),
and the term middleman means any
person whose legal relationship to the
payor or payee (including any other
middleman) is of a kind described in
§1.6049–4(f)(4) (as proposed in project
number INTL–52–86 published in
1988–1 C.B. 892).
(ii)Non-U.S. payor and non-U.S.
middleman. For purposes of this sec-
tion, the term non-U.S. payor or non-
U.S. middleman means a payor or
middleman other than—
(A)A person described in section
7701(a)(30);
(B)The government of the United
States, the government of any State or
political subdivision thereof (or any
agency or instrumentality of any of the
foregoing);
(C)A controlled foreign corporation
within the meaning of section 957(a);
or
(D)A foreign person 50 percent or
more of the gross income of which,
from all sources for the three-year
period ending with the close of its
taxable year preceding the collection or

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payment (or such part of such period as
the person has been in existence), was
effectively connected with the conduct
of trade or business within the United
States.
(3)Applicable presumptions. The
presumptions of §1.1441–1(f) shall ap-
ply for determining the payee’s status
under §1.6042–3 where the required
documentation is lacking, incomplete,
incorrect, or unreliable.
(4)Joint owners. In the case of
amounts paid to joint owners for which
a certificate or documentation is re-
quired as a condition for being exempt
from reporting under this paragraph
(b), the payor or middleman must
receive from each joint owner the
required certification or documentation.
Where any one of the joint owners has
not furnished the required certification
or documentation, the payment is not
exempt from reporting under this sec-
tion.
(5)Payee. For determination of
payee, see §1.1441–1(c)(3).
(6)Conversion into United States
dollars of amounts paid in foreign
currency. For rules concerning foreign
currency conversion, see §1.6049–4(d)-
(3)(i).
(7)Effective date—(i) General rule.
The provisions of this paragraph (b)
apply to payments made after Decem-
ber 31, 1997.
(ii)Transition rules. A payor that
holds a valid Form W–8 on the date
that is 60 days after these regulations
are published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
Par. 32. Section 1.6045–1 as pro-
posed to be amended in project number
INTL–52–86, published on February
29, 1988, at 53 FR 5996, is amended
by:
1.Removing paragraph (a)(1).
2. Removing paragraphs (g)(1)(i),
(g)(1)(ii), (g)(1)(iii) heading, (g)(1)(iii)-
(A), (g)(2), (g)(3), and (g)(4).
3.Redesignating paragraph (g)(1)-
(iii)(B) as follows:
Paragraph
Redesignated as
paragraph
(g)(1)(iii)(B)(g)(1)(ii)
(g)(1)(iii)(B)(1)(g)(1)(ii)(A)
introductory textintroductory text
(g)(1)(iii)(B)(1)(i)(g)(1)(ii)(A)(1)
(g)(1)(iii)(B)(1)(ii)(g)(1)(ii)(A)(2)
(g)(1)(iii)(B)(2)(g)(1)(ii)(B)
introductory textintroductory text
(g)(1)(iii)(B)(2)(i)(g)(1)(ii)(B)(1)
(g)(1)(iii)(B)(2)(ii)(g)(1)(ii)(B)(2)
(g)(1)(iii)(B)(2)(iii)(g)(1)(ii)(B)(3)
(g)(1)(iii)(B)(2)(iv)(g)(1)(ii)(B)(4)
(g)(1)(iii)(B)(2)(v)(g)(1)(ii)(B)(5)
4.Removing in newly designated
paragraph (g)(1)(ii)(A) introductory
text the language ‘‘subdivision 2 of this
paragraph (g)(1)(iii)(B)’’ and adding
‘‘paragraph (g)(1)(ii)(B) introductory
text of this section’’ in its place.
5.Removing in newly designated
paragraph (g)(1)(ii)(B) introductory text
the language ‘‘subdivision (1) of this
paragraph (g)(1)(iii)(B)’’ and adding
‘‘paragraph (g)(1)(ii)(A)’’ in its place.
6.Removing in newly designated
paragraph (g)(1)(ii)(B)(3) the language
‘ ‘ § 1 . 6 0 4 9 – 5 ( j ) ( 4 ) ’ ’ a n d a d d i n g
‘‘§1.6049–5(e)’’ in its place.
Par. 33. Section 1.6045–1(d)(6)(iii)
as proposed to be added in project
number INTL–0015–91, published on
March 17, 1992, at 57 FR 9224, is
withdrawn.
Par. 34. Section 1.6045–1 is
amended by:
1.Revising the heading of paragraph
(a) and republishing paragraph (a)
introductory text.
2.Revising paragraph (a)(1).
3.Revising paragraph (d)(6).
4.Revising paragraph (g)(1) head-
ing; removing paragraph (g)(i) intro-
ductory text; and revising paragraphs
(g)(1)(i) and (g)(2) through (g)(4).
The revisions read as follows:
§1.6045–1 Returns of information of
brokers and barter exchanges.
(a)Definitions. The following defini-
tions apply for purposes of this section:
(1)The term broker means any
person (other than a person who is
required to report a transaction under
section 6043), 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. A broker includes an obligor
that regularly issues and retires its own
debt obligations or a corporation that
regularly redeems its own stock. How-
ever, with respect to a sale (including a
redemption or retirement) effected at an
office outside the United States, a
broker includes only a person described
as a U.S. payor or U.S. middleman in
§1.6049–5(d)(1). In addition, a broker
does not include an international orga-
nization described in §1.6049–4(c)(1)-
(ii)(G) that redeems or retires an
obligation of which it is the issuer.
******
(d) * * *
(6)Conversion into United states
dollars of proceeds paid in foreign
currency—(i) Conversion rules. When
the amount subject to reporting is paid
in a currency other than the U.S. dollar,
the amount subject to reporting under
this section shall be determined by
converting such foreign currency into
U.S. dollars on the date of payment at
the spot rate (as defined in §1.988–
1(d)(1)) or pursuant to a reasonable
spot rate convention. For example, a
withholding agent may use a month-
end spot rate or a monthly average spot
rate. A spot rate convention must be
used consistently with respect to all
non-dollar amounts withheld and from
year to year. Such convention cannot
be changed without the consent of the
Commissioner or his or her delegate.
(ii)Effect of identification under
§1.988–5(a), (b), or (c) where the
taxpayer effects a sale and a hedge
through the same broker—(A) In gen-
eral. In lieu of the amount reportable
under paragraph (d)(6)(i) of this sec-
tion, the amount subject to reporting
shall be the integrated amount com-
puted under §1.988–5(a), (b) or (c) if—
(1) A taxpayer effects through a
broker a sale in exchange for nonfunc-
tional currency (as defined in §1.988–
1(c)) and hedges all or a part of such
sale as provided in §1.988–5(a), (b) or
(c) with the same broker; and
(2) The taxpayer complies with the
requirements of §1.988–5(a), (b) or (c)
and so notifies the broker prior to the
end of the calendar year in which the
sale occurs.
(B)Effective date. The provisions of
this paragraph (d)(6)(ii) apply to trans-
actions entered into on or after the date
that is 60 days after these regulations
are published as final regulations in the
Federal Register.
******
(g)Exempt foreign persons—(1)
Brokers—(i) In general. No return of
information is required by a broker
with respect to a customer who is
considered to be an exempt foreign

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person under this paragraph (g)(1)(i).
Unless it has actual knowledge or
reason to know otherwise, a broker
may treat a customer as an exempt
foreign person under the circumstances
described in paragraph (g)(1)(i)(A)
through (D) of this section. See
§1.6045–1(c)(2)(ii) for reportable pro-
ceeds paid to foreign persons.
(A)With respect to a sale effected at
an office of a broker inside the United
States, the broker may treat the
customer as an exempt foreign person
if the broker complies with the proce-
dures described in paragraph (g)(3) of
this section.
(B)With respect to a sale effected at
an office of a broker outside the United
States, the broker may treat the
customer as an exempt foreign person
if the broker complies with the proce-
dures described in paragraph (g)(3) of
this section or §1.6049–5(c)(2).
(C)With respect to a redemption or
retirement of stock or an obligation
(the interest or original issue discount
on which is described in §1.6049–5(b)-
(6), (7), (10), or (11)) or the dividends
on which are described in §1.6042–
3(b)(1)(iv)) that is effected at an office
of a broker outside the United States
by the issuer (or its paying or transfer
agent), the broker may treat the
customer as an exempt foreign person
if the broker is not also acting in its
capacity as a custodian, nominee, or
other agent of the payee.
(D)With respect to a sale effected
by a broker at an office of the broker
either inside or outside the United
States, the broker may treat the
customer as an exempt foreign person
for the period that those proceeds are
assets blocked as described in §1.1441–
2(e)(3). For purposes of this paragraph
(g)(1)(i)(D) and section 3406, a pay-
ment is deemed to occur in accordance
with §1.1441–2(e)(3).
******
(2)Barter exchange. No return of
information is required by a barter
exchange with respect to a client or a
member that the barter exchange may
treat as a foreign person pursuant to the
procedures described in paragraph
(g)(3) of this section.
(3)Certificate of foreign status—(i)
In general. For purposes of this para-
graph (g), a broker may treat a
customer as an exempt foreign person
if the broker complies with the require-
ments of §1.1441–1(e)(1) (dealing with
reliance by a withholding agent on a
beneficial owner’s claim of foreign
status). For purposes of this paragraph
(g)(3)(i), the broker may rely on a
beneficial owner withholding certificate
described in §1.1441–1(e)(2). For pur-
poses of this paragraph (g)(3)(i), in the
case of an individual beneficial owner,
the certificate shall include a certifica-
tion that the beneficial owner has not
been, and at the time the certificate is
furnished, reasonably expects not to be
present in the United States for a
period aggregating 183 days or more
during the calendar year.
(ii)Applicable presumptions. Absent
actual knowledge or reason to know
otherwise, the presumptions under
§1.1441–1(f) shall apply in determining
the payee’s status where the required
documentation is lacking, incorrect, or
unreliable.
(iii)Joint owners. In the case of
amounts paid to joint owners for which
a certificate or documentation is re-
quired as a condition for being exempt
from reporting under paragraph (g)(1)-
(i) of this section, a broker or barter
exchange must receive from each joint
owner the required certification or
documentation. Where any one of the
joint owners has not furnished the
required certification or documentation,
the transaction is not exempt from
reporting under paragraph (g)(1)(i) of
this section.
(iv)Payee. For a determination of
payee, see §1.1441–1(c)(3).
(v)Operating rules. For purposes of
this paragraph (g), the provisions in
§1.6049–5(c)(3) through (6) (regarding
operating rules related to the certificate
of foreign status) shall apply.
(4)Effective date—(i) General rule.
The provisions of this paragraph (g)
apply to payments made after Decem-
ber 31, 1997.
(ii)Transition rules. A payor that
holds a valid Form W–8 on a date that
is 60 days after these regulations are
published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
******
Par. 35. In §1.6049–4, paragraphs
(c)(1)(ii)(A) and (c)(1)(ii)(G), as pro-
posed in project number INTL–52–86,
published on February 29, 1988, at 53
FR 6000, are revised to read as
follows:
§1.6049–4 Return of information as
to interest paid and original issue
discount includible in gross income
after December 31, 1982.
******
(c) * ** (1)** *
(ii) * * *
(A)Corporation. A corporation, as
defined in section 7701(a)(3), whether
domestic or foreign, is an exempt
recipient. In addition, for purposes of
this paragraph (c)(1), the term corpora-
tion includes a partnership all of whose
members are corporations described in
this paragraph (c)(1)(ii)(A), but only if
the partnership files with the payor a
certificate meeting the certification re-
quirements set out below. Absent actual
knowledge or reason to know other-
wise, a payor may treat a payee as a
corporation (and, therefore, as an ex-
empt recipient) if one of the require-
ments of paragraph (c)(1)(ii)(A)(1), (2),
(3), (4), (5), or (6) of this section are
met before a payment is made.
(1) For payments other than interest,
dividends, or broker proceeds, the
name of the payee contains an unam-
biguous expression of corporate status
that is ‘‘Incorporated,’’ ‘‘Inc.,’’ ‘‘Cor-
poration,’’ ‘‘Corp.,’’ ‘‘P.C.,’’ (but not
‘‘Company’’ or ‘‘Co.’’) or contains the
term indemnity company, reinsurance
company, or assurance company.
(2) For payments of interest, divi-
dends or broker proceeds that are paid
to a person with whom the payor does
not have an account relationship, the
payor may rely on the test of paragraph
(c)(1)(ii)(A)(1) of this section if the
payor also has a mailing address of the
payee in the United States.
(3) The payor has on file a corporate
resolution or similar document clearly
indicating corporate status.
(4) The payor receives a Form W–9
which includes an EIN and a statement
from the payee that it is a domestic
corporation.
(5) The payor receives a withholding
certificate described in §1.1441–1(e)-
(2), that includes an employer identi-
fication number and a statement from
the payee that it is a foreign corpora-
tion.
(6) The payor maintains an account
for an entity claiming to be a corpora-
tion and the account was established on
or before a date that is 60 days after
these regulations are published as final
regulations in the Federal Register and

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the name of the payee contains an un-
ambiguous expression of corporate sta-
tus that is ‘‘Incorporated,’’ ‘‘Inc.,’’
‘‘Corporation,’’ ‘‘Corp.,’’ or ‘‘P.C.’’
(but not Company or Co.), or contains
the term insurance company, indemnity
company, reinsurance company, or as-
surance company.
******
(G)International organization. An
international organization and any
wholly owned agency or instrumen-
tality thereof are exempt recipients.
The term international organization
shall have the meaning ascribed to it in
section 7701(a)(18). Without requiring
a certificate, a payor may treat a payee
as an international organization if the
payee is designated as an international
organization by executive order (pur-
suant to 22 U.S.C. 288 through 288(f)).
******
Par. 36. Section 1.6049–4 is
amended by revising paragraph (d)(3)
to read as follows:
******
(d) * * *
(3)Conversion into United States
dollars of amounts paid in foreign
currency—(i) Conversion rules. When
the amount subject to reporting is paid
in a currency other than the U.S. dollar,
the amount subject to reporting under
this section shall be determined by
converting such foreign currency into
U.S. dollars on the date of payment at
the spot rate (as defined in §1.988–
1(d)(1)) or pursuant to a reasonable
spot rate convention. For example, a
withholding agent may use a month-
end spot rate or a monthly average spot
rate. A spot rate convention must be
used consistently with respect to all
non-dollar amounts withheld and from
year to year. Such convention cannot
be changed without the consent of the
Commissioner or delegate.
(ii)Special rule for §1.988–5(a)
transactions where the payor on both
components of a qualified hedging
transaction is the same person—(A) In
general. Interest or original issue dis-
count on a qualified debt instrument
that is part of a qualified hedging
transaction under §1.988–5(a) shall be
computed for section 6049 reporting
purposes under the rules described in
§1.988–5(a)(9)(ii) if—
(1) The payor on the qualified debt
instrument and the counterparty to the
§1.988–5(a) hedge are the same person;
and
(2) The payee complies with the
requirements of §1.988–5(a) and so
notifies its payor prior to the date
required for filing Form 1099 as
required by this section.
(B)Effective date. The provisions of
this paragraph (d)(3)(ii) apply to trans-
actions entered into on or after Decem-
ber 31, 1997.
******
Par. 37. Section 1.6049–5, as pro-
posed to be amended in project number
INTL–52–86, published on February
29, 1988, at 53 FR 6003, is amended as
follows:
1.Revising paragraphs (b) introduc-
tory text and (b)(6) through (b)(8).
2 . A d d i n g p a r a g r a p h s ( b ) ( 1 0 )
through (b)(14).
3.Revising paragraphs (c) and (d).
4.Removing paragraph (e) and re-
designating paragraph (j) as new para-
graph (e).
5.Removing and reserving para-
graph (f).
6.Revising paragraph (g).
7.Removing paragraphs (h) and (i).
8.Redesignating paragraph (k) as
paragraph (f) and removing the last
sentence.
9.Removing paragraph (l).
The revisions and additions read as
follows:
§1.6049–5 Interest and original issue
discount subject to reporting after
December 31, 1982.
******
(b)Interest excluded from reporting
requirement. The term interest or origi-
nal issue discount (OID) does not
include—
******
(6)Amounts from sources outside
the United States paid outside the
United States by a non-U.S. payor or a
non-U.S. middleman (as defined in
paragraph (d)(2) of this section).
(7)Portfolio interest, as defined in
§1.871–14(b)(1), paid with respect to
bearer obligations described in section
871(h)(2)(A) or 881(c)(2)(A) or with
respect to a foreign-targeted registered
obligation defined in §1.6049–5(j)(4)
(as proposed in project number INTL–
52–86 (1988–1 C.B. 892)) (other than
by a U.S. middleman (as defined in
paragraph (d)(1) of this section) that, as
a custodian or nominee of the payee,
collects the amount for, or on behalf
of, the payee, regardless of whether the
middleman is also acting as agent of
the payor).
(8)Portfolio interest, as defined in
§1.871–14(c)(1), paid with respect to
registered obligations described in sec-
tion 871(h)(2)(B) or 881(c)(2)(B).
******
(10) Amounts paid outside the
United States (other than by a U.S.
middleman (as defined in paragraph
(d)(1) of this section) that, as a
custodian or nominee or other agent of
the payee, collects the amount for, or
on behalf of, the payee, regardless of
whether the middleman is also acting
as agent of the payor) with respect to
an obligation that: has a face amount or
principal amount of not less than
$500,000; has a maturity (at issue) of
183 days or less; satisfies the require-
ments of sections 163(f)(2)(B)(i) and
(ii)(I) (as if it were a registration-
required obligation within the meaning
of section 163(f)(2)(A)) and is issued
in accordance with the procedures of
§1.163–5(c)(2)(i)(D); and has on its
face the following statement (or a
similar statement having the same
effect)—‘‘By accepting this obligation,
the holder represents and warrants that
it is not a United States person (other
than an exempt recipient described in
section 6049(b)(4) of the Internal Reve-
nue Code and regulations thereunder)
and that it is not acting for or on behalf
of a United States person (other than
an exempt recipient described in sec-
tion 6049(b)(4) of the Internal Revenue
Code and the regulations thereunder).’’
If the obligation is in registered form,
it must be registered in the name of an
exempt recipient described in §1.6049–
4(c)(1)(ii). For purposes of this para-
graph (b)(10), a middleman may treat
an obligation as described in section
163(f)(2)(B)(i) and (ii)(I) and the reg-
ulations under that section if the
obligation, or coupons detached there-
from, whichever is presented for pay-
ment, contains the statement described
in this paragraph (b)(10).
(11)Amounts paid with respect to
an account or deposit with a U.S. or
foreign branch of a domestic or foreign
corporation or partnership that is paid
with respect to an obligation described

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in paragraph (b)(11)(i) or (ii) of this
section, if the branch is engaged in the
commercial banking business; and the
interest or OID is paid outside the
United States (other than by a U.S.
middleman (as defined in paragraph
(d)(1) of this section) that acts as a
custodian, nominee, or other agent of
the payee, and collects the amount for,
or on behalf of, the payee, regardless
of whether the middleman is also
acting as agent of the payor).
(i)An obligation is described in this
paragraph (b)(11)(i) if it is not in
registered form (within the meaning of
section 163(f) and the regulations under
that section), is described in section
163(f)(2)(B) and issued in accordance
with the procedures of §1.163–5(c)(2)-
(i)(C) or (D), and, in the case of a U.S.
branch, is part of a larger single public
offering of securities. For purposes of
this paragraph (b)(11)(i), a middleman
may treat an obligation as described in
section 163(f)(2)(B) if the obligation,
and any detachable coupons, contains
the statement described in section
163(f)(2)(B)(ii)(II) and the regulations
under that section.
(ii)An obligation is described in this
paragraph (b)(11)(ii) if it produces
income described in section 871(i)(2)-
(A); has a face amount or principal
amount of not less than $500,000;
satisfies the requirements of sections
163(f)(2)(B)(i) and (ii)(I) (as if it were
a registration-required obligation within
the meaning of section 163(f)(2)(A))
and is issued in accordance with the
procedures of §1.163–5(c)(2)(i)(C) or
(D); has on its face, and on any
detachable coupons, the following
statement (or a similar statement hav-
ing the same effect)—‘‘By accepting
this obligation, the holder represents
and warrants that it is not a United
States person (other than an exempt
r e c i p i e n t d e s c r i b e d i n s e c t i o n
6049(b)(4) of the Internal Revenue
Code and regulations thereunder) and
that it is not acting for or on behalf of
a United States person (other than an
exempt recipient described in section
6049(b)(4) of the Internal Revenue
Code and the regulations thereunder).’’
If the obligation is in registered form,
it must be registered in the name of an
exempt recipient described in §1.6049–
4(c)(1)(ii). For purposes of this para-
graph (b)(11)(ii), a middleman may
treat an obligation as described in
sections 163(f)(2)(B)(i) and (ii)(I) and
the regulations under that section if the
obligation, or any detachable coupon,
contains the statement described in this
paragraph (b)(11)(ii).
(12)Amounts that the payor may
treat as paid to a beneficial owner that
is a foreign person pursuant to
§1.1441–1(e)(1) and from which the
payor or middleman is either required
to withhold tax under section 1441 or
the regulations under that section or
would be so required but for exceptions
in the regulations under section 1441
(such as, for example, under §1.1441–4
(dealing with effectively connected in-
come) or §1.1441–6 (dealing with a
reduction of rate of tax under an
income tax treaty)).
(13)Amounts for the period that
they represent an asset blocked as
described in §1.1441–2(e)(3)). Payment
of such amounts, including interest that
is past due and OID on obligations that
mature on or before the date that the
assets are no longer blocked, is deemed
to occur in accordance with the rules of
§1.1441–2(e)(3).
(14)Amounts that are from sources
outside the United States or original
issue discount on any obligation pay-
able less than 6 months from the date
of original issue described in section
871(g)(1)(B)(i) and that a payor or
middleman may treat as paid to a
beneficial owner that is a foreign
person (because such person has fur-
nished a certificate or documentary
evidence as required under paragraph
(c) of this section).
(c)Treatment of payee as a foreign
person—(1) On-shore accounts or pay-
ments inside the U.S. A payor or
middleman making a payment with
respect to an on-shore account, as
defined in paragraph (d)(3) of this
section, or making a payment inside the
United States, as defined in paragraph
(e) of this section, may treat the
payment as made to a beneficial owner
that is a foreign person if it complies
with the requirements under §1.1441–
1(e)(1) (dealing with reliance by a
withholding agent on a beneficial
owner’s claim of foreign status). For
purposes of this section, beneficial
owner shall be as defined in §1.1441–
1(c)(6)(ii)(A).
(2)Payments made outside the
United States with respect to off-shore
accounts—(i) In general. In the case of
a payment made outside the United
States with respect to an offshore
account, as defined in paragraph (d)(3)
of this section, a payor or middleman
may treat a payment as made to a
beneficial owner (as described in
§1.1441–1(b)(6)) that is a foreign per-
son if it complies with the procedures
described in paragraph (c)(1) of this
section or complies with the documen-
tary evidence procedures described in
paragraph (c)(2)(ii) of this section.
(ii)Documentary evidence. A payor
or middleman complies with the docu-
mentary evidence procedures if, prior
to the payment, the payor or middle-
man has established procedures to
obtain, review, and maintain documen-
tary evidence sufficient to establish the
identity of the beneficial owner and the
status of that person as a foreign
person; and the payor or middleman
obtains, reviews, and maintains such
documentary evidence in accordance
with those procedures. A payor or
middleman maintains the documents
reviewed by retaining the original,
certified copy, or a photocopy of the
documents reviewed and noting in its
records the date on which and by
whom the document was received and
reviewed.
(3)Presumptions. The presumptions
of §1.1441–1(f) shall apply for deter-
mining the payee’s status where the
required documentation is lacking, in-
correct, or unreliable.
(4)Validity of certificates and docu-
mentary evidence. For rules regarding
the period of validity of a withholding
certificate, see §1.1441–1(e)(4)(ii).
Documentary evidence or a certificate
that does not include a taxpayer identi-
fying number shall be valid for a
period of three years from the date
received by the payor or middleman.
The three-year validity period shall
start from the date that the certificate is
signed (or the documentation is re-
ceived) until the last day of the third
succeeding calendar year. For example,
a withholding certificate signed on
September 10, 1998, remains valid
through December 31, 2001. A benefi-
cial owner that becomes a U.S. person
must, however, inform a payor or
middleman within 30 days of change of
status.
(5)Retention of withholding certifi-
cate. A payor or middleman must
retain each withholding certificate, any
applicable documentary evidence, and
any information obtained in lieu of the
withholding certificate as long as it
may be relevant to the determination of
the payor’s or middleman’s liability
under the reporting provisions of this
chapter and related provisions.

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(6)Standard of knowledge. A payor
or middleman may not rely on a certi-
ficate or documentary evidence de-
scribed in paragraph (c)(1) or (c)(2)(ii)
of this section if it has actual knowl-
edge that the representations made
therein or on the basis thereof are in-
correct or if any of the required in-
formation or certifications described in
§1.1441–1(f)(1)(ii) are lacking from the
certificate or documentary evidence.
(7)Joint owners. In the case of
amounts paid to joint owners and for
which a certificate or documentation is
required as a condition for being
exempt from reporting under this para-
graph (c), a payor or middleman must
receive from each joint owner the
required certification or documentation.
Where any one of the joint owners has
not furnished the required certification
or documentation, the payment is not
exempt from reporting under this para-
graph (c).
(8)Payee. For determination of
payee, see §1.1441–1(c)(3).
(d)Definitions—(1) Payor or mid-
dleman and U.S. payor or U.S. middle-
man. For purposes of this section, the
term payor means any person who is
required to make an information return
with respect to any reportable payment,
as described in section 3406(b) (includ-
ing any middleman). For purposes of
this section, the term middleman means
any person whose legal relationship to
the payor or payee (including any other
middleman) is of a kind described in
§1.6049–4(f)(4) (as proposed in project
number INTL–52–86 published in
1988–1 C.B. 892). Thus, a person who,
from within the United States, forwards
an interest coupon or discount obliga-
tion on behalf of a payee for presenta-
tion, collection or payment outside the
United States is also a middleman for
purposes of this section (but the
transfer, although subject to informa-
tion reporting under this section, does
not make the payment subject to
backup withholding under section
3406). For purposes of this section, the
term U.S. payor or U.S. middleman
means a payor or middleman that is—
(i)A person described in section
7701(a)(30);
(ii)The government of the United
States, the government of any State or
political subdivision thereof (or any
agency or instrumentality of any of the
foregoing);
(iii)A controlled foreign corporation
within the meaning of section 957(a);
or
(iv)A foreign person 50 percent or
more of the gross income of which,
from all sources for the three-year
period ending with the close of its
taxable year preceding the collection or
payment (or such part of such period as
the person has been in existence), was
effectively connected with the conduct
of trade or business within the United
States.
(2)Non-U.S. payor or non-U.S.
middleman. A non-U.S. payor or a non-
U.S. middleman is a payor or middle-
man that is not a U.S. payor or a U.S.
middleman.
(3)On-shore and off-shore accounts.
An on-shore account means an account
maintained at an office or branch of a
payor or middleman in the United
States. An offshore account means an
account that is not an on-shore account.
******
(g)Effective date—(1) General rule.
The provisions of paragraphs (b)(6)
through (b)(14), (c), (d), and (e) of this
section apply to payments made after
December 31, 1997.
(2)Transition rules. A payor that
holds a valid Form W–8 on a date that
is 60 days after these regulations are
published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
Par. 38. Section 1.6050N–1 is
amended by:
1.Revising the section heading.
2.Redesignating paragraphs (c) and
(d) as paragraphs (d) and (e),
respectively.
3.Adding a new paragraph (c).
4.Revising newly designated para-
graph (e).
The addition and revisions read as
follows:
§1.6050N–1 Statement to recipients of
royalties paid after December 31,
1986.
******
(c)Exempted foreign-related items—
(1) In general. No return shall be
required under paragraph (a) of this
section for payments of the items
described in paragraphs (c)(1)(i)
through (iii) of this section.
(i)Returns of information are not
required for payments of royalties that
a payor or middleman, as defined in
paragraph (c)(2)(i) of this section, may
treat as made to a beneficial owner that
is a foreign person pursuant to
§1.1441–1(e)(1) and from which the
payor or middleman is either required
to withhold tax under section 1441 or
the regulations under that section or
would be so required but for exceptions
in the regulations under section 1441
(such as, for example, under §1.1441–4
(dealing with effectively connected in-
come) or §1.1441–6 (dealing with a
reduction of rate of tax under an in-
come tax treaty)). See §1.1441–1(e)-
(4)(i) in the case of payments to joint
owners.
(ii)Returns of information are not
required for payments of royalties from
sources outside the United States made
outside the United States by a non-U.S.
payor or non-U.S. middleman (as de-
fined in paragraph (c)(2)(ii) of this
section). See §1.6049–5(e) for circum-
stances in which a payment is consid-
ered to be made outside the United
States.
(iii)Returns of information are not
required for payments of royalties from
sources outside the United States that a
payor or middleman may treat as paid
to a beneficial owner that is a foreign
person (because such person has fur-
nished a certificate described in
§1.6049–5(c)(1)). For purposes of this
paragraph (c)(1)(iii), the presumptions
in §1.6049–5(c)(3) through (6) (regard-
ing operating rules related to the
certificate of foreign status) shall apply.
(2)Definitions—(i) Payor and mid-
dleman. For purposes of this section,
the term payor means any person who
is required to make an information
return with respect to any reportable
payment, as described in section
3406(b), including any middleman. For
purposes of this section, the term
middleman means any person whose
legal relationship to the payor or payee
(including any other middleman) is of a
kind described in §1.6049–4(f)(4) (as
proposed in project number INTL–52–
86 published in 1988–1 C.B. 892).
(ii)Non-U.S. payor and non-U.S.
middleman. The term non-U.S. payor
or non-U.S. middleman means a payor
or middleman other than—
(A)A person described in section
7701(a)(30);
(B)The government of the United
States, the government of any State or
political subdivision thereof (or any
agency or instrumentality of any of the
foregoing);

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(C)A controlled foreign corporation
within the meaning of section 957(a);
or
(D)A foreign person 50 percent or
more of the gross income of which,
from all sources for the three-year
period ending with the close of its
taxable year preceding the collection or
payment (or such part of such period as
the person has been in existence), was
effectively connected with the conduct
of trade or business within the United
States.
(iii)Applicable presumptions. The
presumptions of §1.1441–1(f) shall ap-
ply for determining the payee’s status
where the required documentation is
lacking, incorrect, or unreliable.
(iv)Joint owners. In the case of
amounts paid to joint owners and re-
quiring a certificate or documentation
as a condition for being exempt from
reporting under this paragraph (c), the
payor or middleman must receive from
each joint owner the required certifica-
tion. Where any one of the joint
owners has not furnished the required
certification, the payment is not exempt
from reporting under this section.
(v)Payee. For determination of
payee, see §1.1441–1(c)(3).
******
(e)Effective date—(1) General rule.
The provisions of paragraph (c) of this
section apply to payments made after
December 31, 1997.
(2)Transition rules. A payor that
holds a valid Form W–8 on a date that
is 60 days after these regulations are
published as final regulations in the
Federal Register may treat it as a valid
certificate until its validity expires
under applicable provisions as in effect
on April 22, 1996.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME
TAX AT SOURCE
Par. 39. The authority for part 31
continues to read in part as follows:
Authority: 26 U.S.C. 7805 ** *
Par. 40. Section 31.3401(a)(6)–1 is
amended by:
1.Revising the section heading.
2.Revising the heading and first
sentence of paragraph (e).
3.Adding paragraph (f).
4.Removing the authority citation at
the end of the section.
The addition and revisions read as
follows:
§31.3401(a)(6)–1 Remuneration for
services of nonresident alien
individuals.
******
(e)Exemption from income tax for
remuneration paid for services per-
formed before January 1, 1998. Re-
muneration paid for services performed
within the United States by a nonresi-
dent alien individual before January 1,
1998 is excepted from wages and hence
is not subject to withholding if such
remuneration is, or will be, exempt
from income tax imposed by chapter 1
of the Internal Revenue Code by reason
of a provision of the Internal Revenue
Code or an income tax convention to
which the United States is a party.* * *
(f)Exemption from income tax for
remuneration paid for services per-
formed after December 31, 1997. Re-
muneration paid for services performed
within the United States by a nonresi-
dent alien individual after December
31, 1997 is excepted from wages and
hence is not subject to withholding if
such remuneration is, or will be,
exempt from the income tax imposed
by chapter 1 of the Internal Revenue
Code by reason of a provision of the
Internal Revenue Code or an income
tax convention to which the United
States is a party. An employer may rely
on a claim that the employee is entitled
to an exemption from tax if it complies
with the requirements of §1.1441–
1(e)(1) of this chapter (for a claim
based on a provision of the Internal
Revenue Code) or §1.1441–4(b)(2) of
this chapter (for a claim based on an
income tax convention).
Par. 41. In §31.3406(d)–3, paragraph
(c) is revised to read as follows:
§31.3406(d)–3 Special 30-day rules
for certain reportable payments.
******
(c)Application to foreign payees.
The rules of paragraphs (a) and (b) of
this section also apply to a payee from
whom the payor is required to obtain a
Form W–8 (or an acceptable substitute)
or is to obtain other evidence of
foreign status (pursuant to relevant
regulations under an applicable Internal
Revenue Code section), provided the
payee represents orally or otherwise,
before or at the time of the acquisition
or sale of the instrument or the
establishment of the account, that the
payee is not a United States citizen or
resident. In the case of a payment made
after December 31, 1997, to a person
with respect to whom indicia of foreign
ownership exists, as described in
§1.1441–1(f)(2)(ii)(A) of this chapter,
at any time before expiration of the 30-
day grace period described in this
paragraph (c), the procedures described
in that section shall apply, including
the special grace period. The 30-day
and 90-day grace periods shall run
concurrently. Therefore, for example, if
indicia of foreign ownership were pro-
vided on the 28th day after a payment
is credited to an account, the 30-day
grace period would convert to a 90-day
g r a c e p e r i o d u n d e r § 1 . 1 4 4 1 –
1(f)(2)(ii)(A) of this chapter, of which
28 days would have already elapsed.
Par. 42. In §31.3406(g)–1, paragraph
(e) is added to read as follows:
§31.3406(g)–1 Exception for payments
to certain payees and certain other
payments.
******
(e)Certain reportable payments
made outside the United States by
foreign persons, foreign offices of
United States banks and brokers, and
others. A payor of a reportable pay-
ment or transfer is not required to
backup withhold under section 3406 if
such reportable payment or transfer is
of a kind that is exempt from reporting
if documentary evidence described in
§1.6049–5(2)(ii) of this chapter is
provided to the payor, unless the payor
has actual knowledge that the payee is
a United States person. In addition,
amounts paid with respect to notional
principal contracts described in
§1.6041–1(d)(5) of this chapter are not
subject to backup withholding if they
are paid outside the United States,
unless the payor has actual knowledge
that the payee is a United States
person.
Par. 43. Section 31.3406(h)–2 is
amended by:
1.Removing the heading of para-
graph (e)(1).
2.Removing the paragraph designa-
tion (e)(1).
3.Removing paragraph (e)(2).

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4.Revising paragraph (a)(3)(i) to
read as follows:
§31.3406(h)–2 Special rules.
(a) * * *
(3)Joint foreign payees—(i) In gen-
eral. If the relevant payee listed on an
account or instrument provides the
penalties of perjury statement regarding
its foreign status, withholding under
section 3406 applies unless—
(A)Every joint payee provides the
statement regarding foreign status (un-
der the provisions of chapter 3 and
chapter 61 of the Internal Revenue
Code and the regulations under those
provisions); or
(B)Any one of the joint owners
who has not established foreign status
provides a taxpayer identifying number
to the payor in the manner required in
§31.3406(d)–1.
******
Par. 44. Section 31.6413(a)–3 is
amended as follows:
1.In paragraph (a)(1)(iii), the lan-
guage ‘‘(including the certification re-
lating to foreign status described in
§1.6049–5(b)(2)(iv) of this chapter or
§1.6045–1(g)(1) of this chapter)’’ is
removed and ‘‘(including the documen-
tation required under §§1.1441–1(e)(1),
1.6045–1(g)(3), and 1.6049–5(c) of this
chapter)’’ is added in its place.
2.Paragraph (a)(1)(ii) is amended by
removing ‘‘or’’ at the end of the
paragraph and paragraph (a)(1)(iii) is
amended by removing the period at the
end of the paragraph and adding ‘‘;
or’’ in its place.
3.Paragraph (a)(1)(iv) is added.
4.Paragraphs (a)(2) and (b)(2) are
revised.
The addition and revisions read as
follows:
§31.6413(a)–3 Repayment by payor of
tax erroneously collected from payee.
(a) * ** (1) ** *
(iv)The amount is withheld because
a payor imposed backup withholding
on a payment made to a person because
the payee failed to furnish the required
documentation described in §§1.1441–
1(e)(1), 1.6045–1(g)(3), and 1.6049–
5(c) of this chapter and the payee
subsequently furnishes, completes, or
corrects the required documentation.
The required documentation must be
furnished, completed, or corrected prior
to the end of the calendar year in
which the payment is made and prior to
the time the payor furnishes a Form
1099 to the payee with respect to the
payment for which the withholding
erroneously occurred.
(2)For purposes of paragraph (a)(1)
of this section (other than erroneous
withholding occurring under the cir-
cumstances described in paragraph
(a)(1)(iv) of this section), if a payor or
broker withholds because the payor or
broker has not received a taxpayer
identifying number or required cer-
tification and the payee subsequently
provides a taxpayer identifying number
or a required certification to the payor,
the payor or broker may not refund the
amount to the payee.
(b) * * *
(2)Adjustment after the deposit of
the tax—(i) In general. Except as
provided in paragraph (b)(2)(ii) of this
section, if the amount erroneously
withheld has been deposited prior to
the time that the refund is made to the
payee, the payor or broker may adjust
any subsequent deposit of the tax
collected under chapter 24 of the
Internal Revenue Code that the payor
or broker is required to make in the
amount of the tax that has been
refunded to the payee.
(ii)Erroneous withholding from a
payee that is a foreign person. Where a
payor withholds in error from a payee
that is a nonresident alien or foreign
person, as described in paragraph (b)(1)
of this section, the payor may refund
some or all of the amount subject to
backup withholding under section 3406.
A refund may be paid in accordance
with the requirements of this paragraph
(b)(2)(ii) where the required documen-
tation is furnished, completed, or cor-
rected prior to the end of the calendar
year in which the payment is made and
prior to the time the payor furnishes a
Form 1099 to the payee with respect to
the payment for which the withholding
erroneously occurred. The amount of
the refund will be the amount er-
roneously withheld less the amount of
tax required to be withheld, if any,
under chapter 3 of the Internal Revenue
Code. With respect to the amount of
the payment to the foreign person and
the amount of tax required to be with-
held under chapter 3 of the Internal
Revenue Code, returns must be made
in accordance with the requirements of
§1.1461–1(b) and (c) of this chapter.
PART 35a—TEMPORARY
EMPLOYMENT TAX
REGULATIONS UNDER THE
INTEREST AND DIVIDEND TAX
COMPLIANCE ACT OF 1983
Par. 45. The authority for part 35a is
amended by removing the entries for
§ 3 5 a . 9 9 9 9 – 3 , § 3 5 a . 9 9 9 9 – 3 A a n d
§35a.9999–4T to read in part as
follows:
Authority: 26 U.S.C. 7805 ** *
§§35a.9999–1 through 35a.9999–3A,
and 35a.9999–4T [Removed]
Par. 46. Sections 35a.9999–1 through
35a.9999–3A, and 35a.9999–4T are
removed.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 47. The authority citation for
part 301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. ** *
Par. 48. Section 301.6109–1 as pro-
posed to be amended in project number
INTL–0024–94, published on June 8,
1995, at 60 FR 30214, is amended as
follows:
1.Paragraph (b)(2)(iii) is amended
by removing ‘‘and’’ at the end of the
paragraph.
2.Paragraph (b)(2)(iv) is revised.
3.Paragraph (b)(2)(v) is added.
4.Paragraph (c) is revised.
The revisions and additions read as
follows:
§301.6109–1 Identifying numbers.
******
(b) * * *
(2) * * *
(iv)A foreign person that makes a
return of tax under this title (including
income, estate, and gift tax returns) but
excluding information returns, state-
ments, or documents;
(v)A foreign person that furnishes a
withholding certificate described in
§1.1441–1(e)(2) or (e)(3) of this chap-
ter to the extent required under
§1.1441–1(e)(4)(vii) of this chapter.
(c)Requirement to furnish another’s
number. Every person required under

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this title to make a return, statement, or
other document must furnish such tax-
payer identifying numbers of other U.S.
persons and foreign persons that are
described in paragraph (b)(2)(i), (ii),
(iii), or (v) of this section as required
by the forms and the accompanying
instructions. The taxpayer identifying
number of any person furnishing a
withholding certificate referred to in
paragraph (b)(2)(v) of this section shall
also be furnished if it is actually known
to the person making a return, state-
ment, or other document described in
this paragraph (c). If the person making
the return, statement, or other docu-
ment does not know the taxpayer
identifying number of the other person,
and such other person is one that is
described in paragraph (b)(2)(i), (ii),
(iii), or (v) of this section, such person
must request the other person’s num-
ber. The request should state that the
identifying number is required to be
furnished under authority of law. When
the person making the return, state-
ment, or other document does not know
the number of the other person, and has
complied with the request provision of
this paragraph (c), such person must
sign an affidavit on the transmittal
document forwarding such returns,
statements, or other documents to the
Internal Revenue Service, so stating. A
person required to file a taxpayer
identifying number shall correct any
errors in such filing when such per-
son’s attention has been drawn to them.
******
Par. 49. Section 301.6114–1 is
amended by:
1.Revising paragraph (a)(1)(ii).
2.Revising paragraph (b)(4)(ii) in-
troductory text, and adding paragraphs
(b)(4)(ii)(C) and (b)(4)(ii)(D)
3.Revising paragraphs (c)(1) and
(d)(4)(v):
The revisions read as follows:
§301.6114–1 Treaty-based return
positions.
(a) * ** (1) ** *
(ii)If a return of tax would not
otherwise be required to be filed, a
return must nevertheless be filed for
purposes of making the disclosure
required by this section. For this
purpose, such return need include only
the taxpayer’s name, address, taxpayer
identifying number, and be signed
under the penalties of perjury (as well
as the subject disclosure). Also, the
taxpayer’s taxable year shall be deemed
to be the calendar year (unless the
taxpayer has previously established, or
timely chooses for this purpose to
establish, a different taxable year). In
the case of a disclosable return position
relating solely to income subject to
withholding (as defined in §1.1441–
2(a) of this chapter), however, the
statement required to be filed in
paragraph (d) of this section must
instead be filed at times and in
accordance with procedures to be pub-
lished by the Internal Revenue Service.
******
(b) * * *
(4) * * *
(ii)A treaty exempts from tax, or
reduces the rate of tax on, fixed or
determinable annual or periodical in-
come subject to withholding under
sections 1441 or 1442 that a foreign
person receives from a U.S. person, but
only if described in paragraphs (b)(4)-
(ii)(A) and (B) of this section, or
paragraph (b)(4)(ii)(C) or (D) of this
section.
******
(C)For payments made after De-
cember 31, 1997, with respect to a
treaty that contains a limitation on
benefits article, that—
(1) The treaty exempts from tax, or
reduces the rate of tax on income
subject to withholding (as defined in
§1.1441–2(a) of this chapter) that is
paid to a foreign person (other than a
State, including a political subdivision
or local authority) that is the beneficial
owner of the income and the beneficial
owner is related to the person obligated
to pay the income within the meaning
of sections 267(b) and 707(b), and the
income exceeds $500,000; and
(2) A foreign person (other than an
individual or a State, including a
political subdivision or local authority)
meets the requirements of the limitation
on benefits article of the treaty; or
(D)For payments made after De-
cember 31, 1997, with respect to a
treaty that imposes any other conditions
for the entitlement of treaty benefits,
for example as a part of the interest,
dividends, or royalty article, that such
conditions are met;
******
(c)Reporting requirement waived.
* * *
(1)Notwithstanding paragraph (b)(4)
or (5) of this section, that a treaty has
reduced the rate of withholding tax
otherwise applicable to a particular
type of fixed or determinable annual or
periodical income subject to withhold-
ing under section 1441 or 1442, such
as dividends, interest, rents, or royalties
to the extent such income is bene-
ficially owned by an individual or a
State (including a political subdivision
or local authority);
******
(d) * * *
(4) * * *
(v)The provision(s) of the limitation
on benefits article (if any) in the treaty
that the taxpayer relies upon to meet
the requirements of that article and a
statement of the relevant facts in
support of the taxpayer’s claim.
******
Par. 50. Section 301.6402–3 is
amended as follows:
1.Paragraph (e) is revised as set
forth below.
2.Removing the OMB parenthetical
and the authority citation at the end of
the section.
§301.6402–3 Special rules applicable
to income tax.
******
(e)In the case of a nonresident alien
individual or foreign corporation, the
appropriate income tax return on which
the claim for refund or credit is made
must contain the tax identification
number of the taxpayer required pur-
suant to section 6109 and the entire
amount of income of the taxpayer
subject to tax, even if the tax liability
for that income was fully satisfied at
source through withholding under chap-
ter 3 of the Internal Revenue Code.
Also, if the overpayment of tax resulted
from the withholding of tax at source
under chapter 3 of the Internal Revenue
Code, a copy of the Form 1042–S
required to be provided to the benefi-
cial owner pursuant to §1.1461–1(c)(1)-
(i) of this chapter must be attached to
the return. For purposes of claiming a
refund, the Form 1042–S must include
the taxpayer identifying number of the
beneficial owner even if not otherwise

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required. No claim of refund or credit
under chapter 65 may be made by the
taxpayer for any amount that the
withholding agent has repaid to the
taxpayer pursuant to §1.1461–2(a)(2) of
this chapter or that was subject to a
set-off pursuant to §1.1461–2(a)(3) of
this chapter. Upon request, a taxpayer
must also submit such documentation
as the Commissioner (or delegate), the
District Director, or the Assistant Com-
missioner (International), may require
establishing that the taxpayer is the
beneficial owner of the income for
which a claim of refund or credit is
being made.
PART 502—[REMOVED]
Par. 51. Part 502 is removed.
PART 503—[REMOVED]
Par. 52. Part 503 is removed.
PART 509—[AMENDED]
Par. 53. The authority citation for
part 509 is revised and the authority
citation for ‘‘Subpart—General Income
Tax’’ removed, to read as follows:
Authority: 26 U.S.C. 62, 3791 and
7805.
Par. 54. Part 509 is amended as
follows:
1. Subpart—Withholding of Tax
consisting of §§509.1 through 509.10 is
removed.
2.In §509.103, paragraph (e) is
removed and reserved.
3.In §509.117, paragraph (a) is
removed and reserved.
4.Sections 509.119 and 509.122 are
removed.
PART 513—[AMENDED]
Par. 55. The authority citation for
part 513 is revised to read as follows:
Authority: 26 U.S.C. 62.
Par. 56. Part 513 is amended as
follows:
1.Section 513.1 is removed.
2.Section 513.2 is amended as
follows:
a.Paragraphs (a)(1) and (a)(2) are
removed and reserved.
b.Paragraph (a)(4) is removed.
c.Paragraph (b) is removed and
reserved.
d. Paragraphs (c) and (d) are
removed.
3.Section 513.3 is amended as
follows:
a.Paragraph (a)(1) is removed and
reserved.
b. Paragraphs (b) and (c) are
removed.
4.Section 513.4 is amended as
follows:
a.Paragraph (a) is removed and
reserved.
b. Paragraphs (c) and (d) are
removed.
5.Section 513.5 is amended as
follows:
a.Paragraph (a) is removed and
reserved.
b. Paragraphs (c) and (d) are
removed.
PART 514—[AMENDED]
Par. 57. The authority citation for
part 514 is revised to read as follows:
Authority: 26 U.S.C. 7805.
Par. 58. Part 514 is amended as
follows:
1.The undesignated centerheading
preceding §514.1 and §§514.1 through
514.10 are removed.
2.Sections 514.20 through 514.21
are removed.
3. In §514.22, paragraph (c) is
removed.
4.Sections 514.23 through 514.32
are removed.
5.Sections 514.101 through 514.117
are removed.
PART 516—[REMOVED]
Par. 59.Part 516 is removed.
PART 517—[REMOVED]
Par. 60. Part 517 is removed.
PART 520—[REMOVED]
Par. 61.Part 520 is removed.
PART 521—[AMENDED]
Par. 62.The authority citation for
part 521 is revised to read as follows:
Authority: 26 U.S.C. 62, 143, 144,
211, and 231.
Par. 63.Part 521 is amended as
follows:
1. Subpart—Withholding of Tax
consisting of §§521.1 through 521.8 is
removed.
2.In §521.103, paragraph (d) is
removed and reserved.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
April 15, 1996, 8:45 a.m., and published in the
issue of the Federal Register for April 22,
1996, 61 F.R. 17614)
Correction of 1995 Instructions for
Schedule SSA (Form 5500), Annual
Registration Statement Identiyfing
Separated Participants With Deferred
Vested Benefits
Announcement 96–38
The Schedule SSA (Form 5500)
instructions for when to file for single
employer plans, incorrectly states that a
separated plan participant with deferred
vested benefits must be reported no
later than the due date (including
extensions) of the Schedule SSA filed
for the plan year during which the
separation occurred.
The instructions should state that a
separated plan participant with deferred
vested benefits must be reported no
later than the due date (including
extensions) of the Schedule SSA filed
for the plan year following the plan
year in which the separation occured.
Deletions from Cumulative List of
Organizations Contributions to Which
Are Deductible Under Section 170 of
the Code
Announcement 96–39
The name of an organization that no
longer qualifies as an organization
described in section 170(c)(2) of the
Internal Revenue Code of 1986 is listed
below.
Generally, the Service will not dis-
allow deductions for contributions
made to a listed organization on or
before the date of announcement in the
Internal Revenue Bulletin that an orga-
nization no longer qualifies. However,
the Service is not precluded from
disallowing a deduction for any contri-
butions made after an organization
ceases to qualify under section
170(c)(2) if the organization has not

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timely filed a suit for declaratory
judgment under section 7428 and if the
contributor (1) had knowledge of the
revocation of the ruling or determina-
tion letter, (2) was aware that such
revocation was imminent, or (3) was in
part responsible for or was aware of
the activities or omissions of the
organization that brought about this
revocation.
If on the other hand a suit for
declaratory judgment has been timely
filed, contributions from individuals
and organizations described in section
170(c)(2) that are otherwise allowable
will continue to be deductible. Protec-
tion under section 7428(c) would begin
on (DATE) 1996, and would end on
the date the court first determines that
the organization is not described in
section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For
individual contributors, the maximum
deduction protected is $1,000, with a
husband and wife treated as one
contributor. This benefit is not ex-
tended to any individual who was
responsible, in whole or in part, for the
acts or omissions of the organization
that were the basis for revocation.
Families for Children
Golden Valley, MN
Correction of Errors in TD 8653,
1996–12 I.R.B. 4
Announcement 96–40
TD 8653 was published in the
Federal Register on January 8, 1996
(61 Fed. Reg. 517), and corrected on
March 21, 1996 (61 Fed. Reg. 11547).
When reprinted in I.R.B. 1996–12 on
March 18, 1996, the document con-
tained the following typographical er-
rors unrelated to the March 21, 1996,
correction: Section 1.1221–2(g)(6)(v)
of the Income Tax Regulations, as
reprinted, contains references to ‘‘May
8, 1996’’. The correct date, which
appears in the Federal Register, is
‘‘May 7, 1996’’. These corrections
(and the correction reflected in the
Federal Register on March 21, 1996)
will appear in TD 8653 when it is
republished in Cumulative Bulletin
1996–1.

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Definition of Terms
Revenue rulings and revenue proce-
dures (hereinafter referred to as ‘‘rul-
ings’’) that have an effect on previous
rulings use the following defined terms
to describe the effect:
Amplified describes a situation where
no change is being made in a prior
published position, but the prior posi-
tion is being extended to apply to a
variation of the fact situation set forth
therein. Thus, if an earlier ruling held
that a principle applied to A, and the
new ruling holds that the same princi-
ple also applies to B, the earlier ruling
is amplified. (Compare with modified,
below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in
a prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an
essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but
not to B, and the new ruling holds that
it applies to both A and B, the prior
ruling is modified because it corrects a
published position. (Compare with am-
plified and clarified, above).
Obsoleted describes a previously
published ruling that is not considered
determinative with respect to future
transactions. This term is most com-
monly used in a ruling that lists
previously published rulings that are
obsoleted because of changes in law or
regulations. A ruling may also be
obsoleted because the substance has
been included in regulations subse-
quently adopted.
Revoked describes situations where
the position in the previously published
ruling is not correct and the correct
position is being stated in the new
ruling.
Superseded describes a situation
where the new ruling does nothing
more than restate the substance and
situation of a previously published
ruling (or rulings). Thus, the term is
used to republish under the 1986 Code
and regulations the same position pub-
lished under the 1939 Code and regula-
tions. The term is also used when it is
desired to republish in a single ruling a
series of situations, names, etc., that
were previously published over a
period of time in separate rulings.
If the new ruling does more than
restate the substance of a prior ruling, a
combination of terms is used. For
example, modified and superseded de-
scribes a situation where the substance
of a previously published ruling is
being changed in part and is continued
without change in part and it is desired
to restate the valid portion of the
previously published ruling in a new
ruling that is self contained. In this
case the previously published ruling is
first modified and then, as modified, is
superseded.
Supplemented is used in situations in
which a list, such as a list of the names
of countries, is published in a ruling
and that list is expanded by adding
further names in subsequent rulings.
After the original ruling has been
supplemented several times, a new
ruling may be published that includes
the list in the original ruling and the
additions, and supersedes all prior
rulings in the series.
Suspended is used in rare situations
to show that the previous published
rulings will not be applied pending
some future action such as the issuance
of new or amended regulations, the
outcome of cases in litigation, or the
outcome of a Service study.
Abbreviations
The following abbreviations in current use and
formerly used will appear in material published
in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

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1
Bulletins 1996–1 through 1996–18
Announcements:
96–1, 1996–2 I.R.B. 57
96–2, 1996–2 I.R.B. 57
96–3, 1996–2 I.R.B. 57
96–4, 1996–3 I.R.B. 50
96–5, 1996–4 I.R.B. 99
96–6, 1996–5 I.R.B. 43
96–7, 1996–5 I.R.B. 44
96–8, 1996–7 I.R.B. 56
96–9, 1996–8 I.R.B. 30
96–10, 1996–8 I.R.B. 30
96–11, 1996–9 I.R.B. 11
96–12, 1996–11 I.R.B. 30
96–13, 1996–12 I.R.B. 33
96–14, 1996–12 I.R.B. 35
96–15, 1996–11 I.R.B. 9
96–16, 1996–13 I.R.B. 22
96–17, 1996–13 I.R.B. 22
96–18, 1996–15 I.R.B. 15
96–19, 1996–15 I.R.B. 15
96–20, 1996–15 I.R.B. 15
96–21, 1996–15 I.R.B. 15
96–22, 1996–15 I.R.B. 16
96–23, 1996–18 I.R.B. 7
96–24, 1996–16 I.R.B. 35
96–25, 1996–17 I.R.B. 13
96–26, 1996–17 I.R.B. 13
96–27, 1996–17 I.R.B. 16
96–28, 1996–17 I.R.B. 16
96–29, 1996–17 I.R.B. 17
96–30, 1996–17 I.R.B. 17
96–31, 1996–17 I.R.B. 18
96–32, 1996–17 I.R.B. 18
96–33, 1996–18 I.R.B. 12
96–34, 1996–18 I.R.B. 13
96–35, 1996–18 I.R.B. 13
96–36, 1996–18 I.R.B. 13
96–37, 1996–18 I.R.B. 14
Delegations Orders:
232 (Rev. 2), 1996–7 I.R.B. 49
239 (Rev. 1), 1996–7 I.R.B. 49
Notices:
96–2, 1996–2 I.R.B. 15
96–1, 1996–3 I.R.B. 30
96–4, 1996–4 I.R.B. 69
96–5, 1996–6 I.R.B. 22
96–6, 1996–5 I.R.B. 27
96–7, 1996–6 I.R.B. 22
96–8, 1996–6 I.R.B. 23
96–9, 1996–6 I.R.B. 26
96–10, 1996–7 I.R.B. 47
96–11, 1996–8 I.R.B. 19
96–12, 1996–10 I.R.B. 29
96–13, 1996–10 I.R.B. 29
See footnote at the end of list.
Notices—Continued
96–14, 1996–12 I.R.B. 11
96–15, 1996–13 I.R.B. 19
96–16, 1996–13 I.R.B. 20
96–17, 1996–13 I.R.B. 20
96–18, 1996–14 I.R.B. 27
96–19, 1996–14 I.R.B. 28
96–20, 1996–14 I.R.B. 30
96–21, 1996–14 I.R.B. 30
96–22, 1996–14 I.R.B. 30
96–23, 1996–16 I.R.B. 23
96–24, 1996–16 I.R.B. 23
96–25, 1996–17 I.R.B. 11
96–26, 1996–18 I.R.B. 4
96–27, 1996–18 I.R.B. 4
Proposed Regulations:
DL–1–95, 1996–6 I.R.B. 28
EE–20–95, 1996–5 I.R.B. 15
EE–34–95, 1996–3 I.R.B. 49
EE–35–95, 1996–5 I.R.B. 19
EE–53–95, 1996–5 I.R.B. 23
EE–55–95, 1996–12 I.R.B. 12
EE–106–82, 1996–10 I.R.B. 31
EE–142–87, 1996–12 I.R.B. 13
EE–148–81, 1996–11 I.R.B. 29
IA–3–94, 1996–17 I.R.B. 12
IA–33–95, 1996–4 I.R.B. 99
IA–41–93, 1996–11 I.R.B. 29
INTL–3–95, 1996–6 I.R.B. 29
INTL–9–95, 1996–5 I.R.B. 25
INTL–54–95, 1996–14 I.R.B. 39
PS–2–95, 1996–7 I.R.B. 50
PS–4–96, 1996–18 I.R.B. 5
PS–6–95, 1996–16 I.R.B. 27
Revenue Procedures:
96–1, 1996–1 I.R.B. 8
96–2, 1996–1 I.R.B. 60
96–3, 1996–1 I.R.B. 82
96–4, 1996–1 I.R.B. 94
96–5, 1996–1 I.R.B. 129
96–6, 1996–1 I.R.B. 151
96–7, 1996–1 I.R.B. 185
96–8, 1996–1 I.R.B. 187
96–8A, 1996–9 I.R.B. 10
96–9, 1996–2 I.R.B. 15
96–10, 1996–2 I.R.B. 17
96–11, 1996–2 I.R.B. 18
96–12, 1996–3 I.R.B. 30
96–13, 1996–3 I.R.B. 31
96–14, 1996–3 I.R.B. 41
96–15, 1996–3 I.R.B. 41
96–16, 1996–3 I.R.B. 45
96–17, 1996–4 I.R.B. 69
96–18, 1996–4 I.R.B. 73
96–19, 1996–4 I.R.B. 80
96–20, 1996–4 I.R.B. 88
96–21, 1996–4 I.R.B. 96
96–22, 1996–5 I.R.B. 27
Revenue Procedures—Continued
96–23, 1996–5 I.R.B. 27
96–24, 1996–5 I.R.B. 28
96–24A, 1996–15 I.R.B. 12
96–25, 1996–8 I.R.B. 19
96–26, 1996–8 I.R.B. 22
96–27, 1996–11 I.R.B. 27
96–28, 1996–14 I.R.B. 31
96–29, 1996–16 I.R.B. 24
Revenue Rulings:
96–1, 1996–1 I.R.B. 7
96–2, 1996–2 I.R.B. 5
96–3, 1996–2 I.R.B. 14
96–6, 1996–2 I.R.B. 8
96–4, 1996–3 I.R.B. 16
96–5, 1996–3 I.R.B. 29
96–7, 1996–3 I.R.B. 12
96–8, 1996–4 I.R.B. 62
96–9, 1996–4 I.R.B. 5
96–10, 1996–4 I.R.B. 27
96–11, 1996–4 I.R.B. 28
96–12, 1996–9 I.R.B. 4
96–13, 1996–10 I.R.B. 19
96–14, 1996–6 I.R.B. 20
96–15, 1996–11 I.R.B. 9
96–16, 1996–11 I.R.B. 4
96–17, 1996–13 I.R.B. 5
96–18, 1996–13 I.R.B. 4
96–19, 1996–14 I.R.B. 24
96–20, 1996–15 I.R.B. 5
96–21, 1996–15 I.R.B. 7
96–22, 1996–15 I.R.B. 9
96–23, 1996–15 I.R.B. 11
Treasury Decisions:
8630, 1996–3 I.R.B. 19
8631, 1996–3 I.R.B. 7
8632, 1996–4 I.R.B. 6
8633, 1996–4 I.R.B. 20
8634, 1996–3 I.R.B. 17
8635, 1996–3 I.R.B. 5
8636, 1996–4 I.R.B. 64
8637, 1996–4 I.R.B. 29
8638, 1996–5 I.R.B. 5
8639, 1996–5 I.R.B. 12
8640, 1996–2 I.R.B. 10
8641, 1996–6 I.R.B. 4
8642, 1996–7 I.R.B. 4
8643, 1996–11 I.R.B. 4
8644, 1996–7 I.R.B. 16
8645, 1996–8 I.R.B. 4
8646, 1996–8 I.R.B. 10
8647, 1996–9 I.R.B. 7
8648, 1996–10 I.R.B. 23
8649, 1996–9 I.R.B. 5
8650, 1996–10 I.R.B. 5
8651, 1996–11 I.R.B. 24
8652, 1996–11 I.R.B. 11
8653, 1996–12 I.R.B. 4

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—Continued
Bulletins 1996–1 through 1996–18
Treasury Decisions—Continued
8654, 1996–11 I.R.B. 14
8655, 1996–12 I.R.B. 9
8656, 1996–13 I.R.B. 9
8657, 1996–14 I.R.B. 4
8658, 1996–14 I.R.B. 13
8659, 1996–16 I.R.B. 4
8660, 1996–17 I.R.B. 4
8661, 1996–17 I.R.B. 7
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1995–
27 through 1995–52 will be found in Internal
Revenue Bulletin 1996–1, dated January 2,
1996.

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Finding List of Current Action on
Previously Published Items
1
Bulletins 1996–1 through 1996–18
*Denotes entry since last publication
Delegation Orders:
232 (Rev. 1)
Superseded by
232 (Rev. 2), 1996–7 I.R.B. 49
239
Amended by
239 (Rev. 1), 1996–7 I.R.B. 49
Revenue Procedures:
65–17
Modified by
96–14, 1996–3 I.R.B. 41
66–49
Modified by
96–15, 1996–3 I.R.B. 41
88–32
Obsoleted by
96–15, 1996–3 I.R.B. 41
88–33
Obsoleted by
96–15, 1996–3 I.R.B. 41
89–19
Superseded by
96–17, 1996–4 I.R.B. 69
89–48
Superseded in part by
96–17, 1996–4 I.R.B. 69
91–22
Modified by
96–1, 1996–1 I.R.B. 8
91–22
Amplified by
96–13, 1996–3 I.R.B. 31
91–23
Superseded by
96–13, 1996–3 I.R.B. 31
91–24
Superseded by
96–14, 1996–3 I.R.B. 41
91–26
Superseded by
96–13, 1996–3 I.R.B. 31
92–20
Modified by
96–1, 1996–1 I.R.B. 8
1
A cumulative finding list for previously
published items mentioned in Internal Revenue
Bulletins 1995–27 through 1995–52 will be
found in Internal Revenue Bulletin 1996–1, dated
January 2, 1996.
Revenue Procedures—Continued
92–85
Modified by
96–1, 1996–1 I.R.B. 8
93–16
Superseded by
96–11, 1996–2 I.R.B. 18
93–46
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–16
Modified by
96–29, 1996–16 I.R.B. 24
94–18
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–59
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–62
Modified by
96–29, 1996–16 I.R.B. 24
94–77
Superseded by
96–28, 1996–14 I.R.B. 31
95–1
Superseded by
96–1, 1996–1 I.R.B. 8
95–2
Superseded by
96–2, 1996–1 I.R.B. 60
95–3
Superseded by
96–3, 1996–1 I.R.B. 82
95–4
Superseded by
96–4, 1996–1 I.R.B. 94
95–5
Superseded by
96–5, 1996–1 I.R.B. 129
95–6
Superseded by
96–6, 1996–1 I.R.B. 151
Revenue Procedures—Continued
95–7
Superseded by
96–7, 1996–1 I.R.B. 185
95–8
Superseded by
96–8, 1996–1 I.R.B. 187
95–13
Superseded by
96–20, 1996–4 I.R.B. 88
95–20
Superseded by
96–24, 1996–5 I.R.B. 28
95–50
Superseded by
96–3, 1996–1 I.R.B. 82
96–3
Amplified by
96–12, 1996–3 I.R.B. 30
Revenue Rulings:
66–307
Obsoleted by
96–3, 1996–2 I.R.B. 14
72–437
Modified by
96–13, 1996–3 I.R.B. 31
80–80
Obsoleted by
96–3, 1996–2 I.R.B. 14
82–80
Modified by
96–14, 1996–3 I.R.B. 41
92–19
Supplemented in part
96–2, 1996–2 I.R.B. 5
92–75
Clarified by
96–13, 1996–3 I.R.B. 31
95–10
Supplemented and superseded by
96–4, 1996–3 I.R.B. 16
95–11
Supplemented and superseded by
96–5, 1996–3 I.R.B. 29
96–24
Modified and amplified by
96–24A, 1996–15 I.R.B. 12

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INDEX
Internal Revenue Bulletins 1996–1
Through 1996–18
For index of items published during
the last six months of 1995, see
I.R.B. 1996–1, dated January 2,
1996.
The abbreviation and number in pa-
rentheses following the index entry
refer to the specific item; numbers
in roman and italic type following the
parentheses refer to the Internal
Revenue Bulletin in which the item
may be found and the page number
on which it appears.
Key to Abbreviations:
RRRevenue Ruling
RPRevenue Procedure
TDTreasury Decision
CDCourt Decision
PLPublic Law
EOExecutive Order
DODelegation Order
TDOTreasury Department Order
TCTax Convention
SPRStatement of Procedural
Rules
PTEProhibited Transaction
Exemption
EMPLOYMENT TAXES
Backup withholding:
Substitute Form W–9 (RP 26) 8, 22
Forms, electronic filing, magnetic
media, Form 1042–S (RP 11) 2,
18; correction (Notice 20) 14, 30
Proposed regulations:
26 CFR 31.3306(r)(2)–1, added;
FUTA taxation of amounts under
employee benefit plans (EE–55–
95) 12, 12
26 CFR 31.6302–1(h)(1)(ii)(A)(2),
added; 31.6302–1(h)(2), –(3), –(7)
and –(8), revised; federal tax
deposits by electronic funds trans-
fer (IA–03–94) 17, 12
26 CFR 31.9999–0, added; effective
date of temporary backup with-
holding regs (IA–33–95) 4, 99
Partial withdrawal of proposed regula-
tions INTL–52–86 (Notice 4) 4, 69
Regulations:
2 6 C F R 3 1 . 3 4 0 2 ( r ) – 1 a d d e d ;
31.3402(r)–IT, removed; withhold-
ing on distributions of Indian
gaming profits to tribal members
(TD 8634) 3, 17
EMPLOYMENT TAXES—
Continued
Regulations—Continued
2 6 C F R 3 1 . 3 4 0 6 – 0 r e v i s e d ;
3 1 . 3 4 0 6 ( a ) – 1 — 3 1 . 3 4 0 6 ( i ) – 1 ,
31.6051–4, 31.6413(a)–3, added;
35a.9999.OT, 35a.3406–2, re-
moved; 301.6109–1, amended;
backup withholding statement
mailing requirements, and due dili-
gence (TD 8637) 4, 29
26 CFR 31.6051–1(d), 31.6071(a)–
1(a)(3), amended; 31.6051–2(c),
31.6081(a)–1(a)(3), 301.6011–
2(c)(4)(i), revised; time for fur-
nishing wage statements on termi-
nation of employer’s operations
(TD 8636) 4, 64; correction
(Notice 21) 14, 30
26 CFR 31.6302–IT(h)(1)(ii)(A)(2),
added; 31.6302–IT(h)(2), –(3),
–(7), –(8), revised; federal tax
deposits by electronic funds trans-
fer (TD 8661) 17, 7
26 CFR 33 and 38, removed; parts
declared obsolete (TD 8655) 12, 9
26 CFR 301.6109–1, amended gran-
tor trust reporting requirements
(TD 8633) 4, 20
26 CFR 301.7507–1, 301.7507–0,
amended; treatment of acquisition
of certain financial institutions
(TD 8641) 6, 4
26 CFR 301.7701–3, amended; cost
sharing arrangements (TD 8632) 4,
6
26 CFR 301.9100–7T, amended;
generation-skipping transfer tax
(TD 8644) 7, 16
Returns:
Information, electronic filing; Form
941 (RP 19) 4, 80
Magnetic tape reporting: Forms 940,
941, and 945 (RP 18) 4, 73
Reporting agents, Form 8655 (RP
17) 4, 69
ESTATE & GIFT TAXES
ADMINISTRATIVE
Proposed regulations:
26 CFR 301.6103(n)–1, amended;
disclosure of returns and return
information to procure property or
services for tax administration pur-
poses (DL–1–95) 6, 28
ESTATE & GIFT TAXES
ADMINISTRATIVE—
Continued
Regulations:
26 CFR 20.2035–1; 26 CFR 23 and
24, 25.2517–1, removed; regula-
tions declared obsolete (TD 8655)
12, 9
26 CFR 301.6109–1, amended; gran-
tor trust reporting requirements
(TD 8633) 4, 20
26 CFR 301.6011–2(c)(4)(i), revised;
time for furnishing wage state-
ments on termination of em-
ployer’s operations (TD 8636) 4,
64
26 CFR 301.7507–1, 301.7507–0,
amended; treatment of acquisition
of certain financial institutions
(TD 8641) 6, 4
26 CFR 301.7701–3, amended; cost
sharing arrangements (TD 8632) 4,
6
26 CFR 301.9100–7T, amended;
generation-skipping transfer tax
(TD 8644) 7, 16
ESTATE TAXES
Annuities, valuation, terminally ill
measured life (RR 3) 1, 14
Regulations:
26 CFR 20.2035–1, removed; regula-
tions declared obsolete (TD 8655)
12, 9
26 CFR 20.7520–3, amended; ac-
turial tables exceptions (TD 8630)
3, 19
26 CFR Part 26, revised; 301.9100–
7T, amended; generation-skipping
transfer tax (TD 8644) 7, 16
Special use value; farms; interest rates
(RR 23) 15, 11
Tax conventions, competent authority
procedures (RP 13) 3, 31
GIFT TAXES
Annuities, valuation, terminally ill
measured life (RR 3) 1, 14
Regulations:
26 CFR 25.2517–1, removed; regula-
tions declared obsolete (TD 8655)
12, 9

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GIFT TAXES—Continued
Regulations—Continued
26 CFR 25.2522(c)–3, 25.7520–3
amended; actuarial tables excep-
tions (TD 8630) 3, 19; correction
(Notice 22) 14, 30
26 CFR 25.2702–3, amended; gran-
tor trust reporting requirements
(TD 8633) 4, 20
26 CFR 25.2702–5, 25.2702–7,
amended; sale of residence from
qualified personal residence trust
(PS–4–96) 18, 5
Tax conventions, competent authority
procedures (RP 13) 3, 31
EXCISE TAXES
Proposed regulations:
26 CFR 48.4081–8; 48.4082–1, re-
vised; 41.4101–1, amended; gas-
oline and diesel fuel dye injection
systems (PS–6–95) 16, 27
26 CFR 48.4101–1(c), 48.4101–2T;
gasoline sale or removal and tax
bond requirements, withdrawn
(Notice 26) 18, 4
26 CFR 301.6103(n)–1, amended;
disclosure of returns and return
information to procure property or
services for tax administration pur-
poses (DL–1–95) 6, 28
Regulations:
26 CFR 48.4081–4, 48.4082–1, –2T,
48.4101–3T, –4T, 48.6427–8T,
–9T, removed; 48.4082–1, –2,
48.4101–1, –2, 48.6427–8, –9,
added; 48.4041–0T, removed;
48.4041–1, –2, –2T, removed;
48.4041–21, amended; 48.4041–
1 5 — 4 8 . 4 0 4 1 – 2 1 , t r a n s f e r r e d ;
48.4042–1, amended; 48.4064–
1(e)(2), amended; 48.4081–1, –2,
–3, revised; 48.4081–4, –5, –7,
amended; 48.4081–6, –8, revised;
48.4081–10T, –11T, –12T, re-
m o v e d ; 4 8 . 4 0 8 2 – 1 , r e v i s e d ;
48.4082–2T, –3T, –4T, 48.4083,
removed; 48.4082–2, –3, –4,
48.4083–1, added; 48.4101–2T,
–3, –3T, –4T, removed; 48.4102–
1, amended; 48.4221, removed;
48.4221–1, –2, –5, amended;
48.4221–8, –9, –10, –12, removed;
4 8 . 4 2 2 1 – 1 1 , r e d e s i g -
nated; 48.4222(a)–1, (b)–1, re-
vised; 48.4222(d)–1, amended;
4 0 . 6 0 1 1 ( a ) – 1 ( b ) , a m e n d e d ;
40.6011(a)–3T, removed; Part 42,
EXCISE TAXES—
Continued
Regulations—Continued
removed; 48.6206–1, removed;
4 8 . 6 4 1 6 ( b ) ( 2 ) – 2 , a m e n d e d ;
48.6416(g)–1, removed; 48.6421–
3, amended; 48.6424–0—48.6424–
6, removed; 48.6427–3, –7,
amended; 48.6427–8, –9, added;
4 8 . 6 4 2 7 – 8 T , – 9 T , r e m o v e d ;
48.6675–1, removed; 48.6714–1,
added; gasoline and diesel fuel
registration requirements (TD
8659) 16, 4
26 CFR 301.7507–1, 301.7507–0,
amended; treatment of acquisition
of certain financial institutions
(TD 8641) 6, 4
26 CFR 301.9100–7T, amended;
generation-skipping transfer tax
(TD 8644) 7, 16
26 CFR 53.4941(d)–2, amended;
self-dealing for private foundations
(TD 8639) 5, 12
26 CFR 301.6011–2(c)(4)(i), revised;
time for furnishing wage state-
ments on termination of em-
ployer’s operations (TD 8636) 4,
64
26 CFR 301.6109–1, amended; gran-
tor trust reporting requirements
(TD 8633) 4, 20
26 CFR 301.7701–3, amended; cost
sharing arrangements (TD 8632) 4,
6
INCOME TAX
Administration:
Advance valuation of art (RP 15) 3,
41
Delegation of authority:
Authority of Taxpayer Ombuds-
man (DO 239 [Rev. 1]) 7, 49
Authority to modify or rescind
TAO (DO 232 [Rev. 2]) 7, 49
Unagreed issues, referral to Appeals
(RP 9) 2, 15
Annuities and pensions, valuation, ter-
minally ill measured life (RR 3) 2,
14
Automobiles:
Owners and lessees, limitations on
depreciation (RP 25) 8, 19
Books and records:
Imaging systems (Notice 10) 7, 47
INCOME TAX—Continued
Books and records—Continued
Capital expenditures (Notice 7) 6, 22
Consolidated returns, single-entity elec-
tion (RP 21) 4, 96
Credit against tax:
Enpowerment zone employment, in-
tent to issue regulations (Notice 1)
3, 30
Differential earnings rate (Notice 15)
13, 19
Employee plans:
Administrative, COBRA premium is-
sues (RR 8) 4, 62
Closing agreements (RP 29) 16, 24
Determination letters (RP 6) 1, 51
Funding:
Full funding limitations, weighted
average interest rate, Dec. 1995
(Notice 2) 2, 15; Jan. 1996
(Notice 9) 6, 26; Feb. 1996
(Notice 11) 8, 19; March 1996
(Notice 16) 13, 20; April 1996
(Notice 24) 16, 23
Mortality tables (RR 7) 3, 12
Retirement Protection Act of 1994
(RR 20) 15, 5; (RR 21) 15, 7
Single sum distributions amounts,
cash balance plans (Notice 8) 6,
23
Estimate tax payments for individuals
(Notice 5) 6, 22
Estate and trusts:
Valuations, transfers to pooled in-
come funds (RR 1) 1, 7
Foreign insurance companies, domes-
tic asset/liability and investment
yield (RP 23) 5, 27
Forms:
Substitute Forms W–2 and W–3,
specifications (RP 24) 5, 28; (RP
24A) 15, 12
Insurance companies:
Life, interest rate tables (RR 2) 2, 5
Interest:
Investment:
Federal short-term, mid-term and
long-term rates, Jan. 1996 (RR
6) 2, 8; Feb. 1996 (RR 14) 6,
20; March 1996 (RR 15) 11, 9;
April 1996 (RR 19) 14, 24
Rates, underpayments and over-
payments (RR 17) 13, 5
Interest netting study (Notice 18) 14,
27

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INCOME TAX—Continued
Inventories:
LIFO:
Price indexes, department stores,
Nov. 1995 (RR 9) 4, 5; Dec.
1995 (RR 12) 9, 4; Jan. 1996
(RR 18) 13, 4; Feb. 1996 (RR
22) 15, 9
Investment:
Inflation adjustment for 1996 (RR 4)
3, 16
Joint return study (Notice 19) 14, 28
Loans:
CPI adjustment for below market
loans—1996 (RR 5) 3, 29
S u b j e c t t o p r i n c i p a l - r e d u c t i o n
method of accounting and mark-to
market rules (Notice 23) 16, 23
Low-income housing credit:
Bond factor amounts Jan.–Mar. 1996
(RR 16) 11, 4
Tax credit (RR 27) 11, 27
Major disaster areas (RR 13) 10, 19
Mark to market, securities dealers
(Notice 12) 10, 29
Partnerships:
Charitable contribution of property
(RR 11) 4, 28
Sales between partners, basis (RR
10) 4, 27
Payments from Presidential Election
Campaign Fund (Notice 13) 10, 29
Per diem allowances (RP 28) 14, 31
Property (contributed or other) distribu-
tion; recognition of gain or loss by
contributing partner; correction
(Notice 17) 13, 20
Proposed regulations:
26 CFR 1.72–17A, amended: 1.72–
17A(d)(1), added; 1.72(p)–1,
added; loans to plan participants
(EE–106–82) 10, 31
26 CFR 1.125–3, added; effect of
Family and Medical Leave Act of
1993 on the operation of cafeteria
plans (EE–20–95) 5, 15
26 CFR 1.367–9, added (INTL–9–
95) 5, 24
26 CFR 1.409–1(b)(2)(i), retirement
bonds withdrawn (EE–118–81) 11,
29
26 CFR 1.411(c)–1, amended; alloca-
tion of accrued benefits between
employer and employee contribu-
tions (EE–20–95) 5, 15
26 CFR 1.411(d)(6), added; future
benefit accrual (EE–34–95) 3, 49
26 CFR 1.501(c)(5)–1, amended;
requirements for tax-exempt orga-
nizations (EE–53–95) 5, 23
INCOME TAX—Continued
Proposed regulations—Continued
26 CFR 1.731–2, added; distribution
of marketable securities by a part-
nership (PS–2–95) 7, 50
26 CFR 1.863–0, added; 1.863–1, –2,
–3, revised; 1.863–4, amended;
1.863–5, removed; source of in-
come from sales of inventory and
natural resources produced in one
jurisdiction and sold in another
(INTL–3–95) 6, 29
26 CFR 1.882–5, 1.884–1, amended;
effectively connected income and
branch profits tax (INTL–54–95)
14, 39
2 6 C F R 1 . 1 2 5 4 – 0 , 1 . 1 2 5 4 – 4 ,
amended; treatment of gain from
disposition of interest in certain
natural resource recapture property
by S corporations (PS–7–89) 8, 24
26 CFR 1.6081–4(a), revised:
1.6081–4(d), added; automatic ex-
tension of time for filing individ-
ual tax returns (IA–41–93) 11, 29
26 CFR 1.6302–4, added; federal tax
deposits by electronic funds trans-
fer (IA–03–94) 17, 12
26 CFR 31.3121(v)(2)–1, –2, added;
FICA taxation amounts under
employee benefit plans (EE–142–
87) 12, 13
26 CFR 31.3306(r)(2)–1, added;
FUTA taxation amounts under
employee benefit plans (EE–55–
95) 12, 12
26 CFR 301.6651–1(c)(3), revised;
failure to file return or pay tax
(IA–41–93) 11, 29
26 CFR 301.6103(n)–1, amended;
disclosure of returns and return
information to procure property or
services for tax administration pur-
poses (DL–1–95) 6, 28
Property (contributed or other) distribu-
tion; recognition of gain or loss by
contributing partner; correction
(Notice 17) 13, 20
Regulations:
26 CFR 1.162–27, added; dis-
allowance of deductions for
employee remuneration in excess
of $1,000,000 (TD 8650) 10, 5;
TD 8650 corrected (Notice 14) 12,
11
26 CFR 1.305–3, –5, –7, amended;
distribution of stock and stock
rights (TD 8643) 11, 4
INCOME TAX—Continued
Regulations—Continued
26 CFR 1.367(a)–3T, amended; cer-
tain transfers of domestic stock or
securities by U.S. persons to for-
eign corporations (TD 8638) 5, 5
26 CFR 1.385–2(d), removed; 1.358–
6, 1.1032–2, 1.1502–30, added;
controlling corporation’s basis ad-
justment (TD 8648) 10, 23
26 CFR 1.401–12(n) redesignated
1.408–2(e); 1.401–12T, removed;
1.401(f)–1, 1.408–2, amended;
nonbank trustee net worth require-
ments (TD 8635) 3, 5
26 CFR 1.411(d)–6T, added; notice
of significant reduction in the rate
of future benefit accrual (TD
8631) 3, 7
26 CFR 1.469–0, 1.469–4, 1.469–11,
amended; 1.469–9, revised; rules
for certain rental real estate ac-
tivities (TD 8645) 8, 4
26 CFR 1.482–0, 301.7701–3,
amended; 1.482–7, added; 1.482–
7T, removed; section 482 cost
sharing arrangements (TD 8632) 4,
6
26 CFR 1.508–1, 1.6033–2 amended;
exempt organization not required
to file annual returns, integrated
auxiliaries of churches (TD 8640)
2, 10
26 CFR 1.597–1—1.597–7, added;
301.7507–1, 301.7507–9, amended;
treatment of acquisition of certain
financial institutions (TD 8641) 6, 4
26 CFR 1.671–4, revised; 1.6012–3,
301.6109–1, amended; grantor
trust reporting requirements (TD
8633) 4, 20
26 CFR 1.704–4, 1.737–1 through
1.737–5, added; recognition of gain
or loss by contributing partner on
distribution of contributed property
or other property (TD 8642) 7, 4
26 CFR 1.861–8, amended; 1.861–17,
added; allocation and apportion-
ment of research and experimental
expenditures (TD 8646) 8, 10
26 CFR 1.861–9T, amended; 1.822–
0, added; 1.882–5, revised; interest
expense deduction of foreign cor-
porations (TD 8658) 14, 13
26 CFR 1.864–4, 1.871–12, 1.884–
0(b), amended; 1.884–1(d)(4),
1.884–2T(a)(5), 1.884–4(b)(1) and
(2), revised; 1.884–1(i)(4), 1.884–
2T(a)(6), 1.884–4(e)(1) and (2),
added; effectively connected in-
come and branch profits tax (TD
8657) 14, 4

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INCOME TAX—Continued
Regulations—Continued
26 CFR 1.1258–1, added; conversion
transactions (TD 8649) 9, 5
26 CFR 1.1301–1, 1.32–1, 1.103–12,
1.110–1, 1.114–1, 1.115–1, 1.116–
1, –2, 1.367(a)–7T, 1.383–1A,
–2A, –3A, 1.804–1, 1.805–1
through –8 and intermediate sec-
tions, 1.820–1, –2, –3, 1.824–1,
– 2 , – 3 , r e m o v e d ; 1 . 9 0 7 – 0 ,
amended; 1.907(e)(1), 1.907(a)–
0A, –1A, 1.907(b)–1A, –2A,
1.907(c)–1A, –2A, –3A, 1.907(d)–
1A, 1.907(e)–1A, 1.907(f)–1A,
1.995–7, 1301–0 through –3 and
intermediate sections, 1.1303–1,
1.1304–1 through –6 and inter-
mediate sections, removed; regula-
tions declared obsolete (TD 8655)
12, 9
26 CFR 1.1445–1, 1.1445–8(c)(2)(i),
revised; 1.1445–5, amended; with-
holding of tax on dispositions of
U.S. real property interests by
foreign persons (TD 8647) 9, 7
2 6 C F R 1 . 1 5 0 2 – 1 3 , r e v i s e d ;
1.267(f)–1(k), amended; 1.1502–
1 3 ( f ) ( 6 ) , a d d e d ; 1 . 1 5 0 2 –
13(g)(2)(i)(B), amended; consoli-
dated groups intercompany trans-
actions and related rules (TD
8660) 17, 4
26 CFR 1.6042–4, 1.6044–5, revised;
1.6049–6, 301.6109–1, amended;
1.6050N–1, added Backup with-
holding, statement mailing require-
ments and due diligence (TD
8637) 4, 29
26 CFR 1.6050I–0T, –2T, removed;
1.6050I–0, –2, added; cash report-
ing by court clerks (TD 8652) 11,
11
26 CFR 1.6050P–0, –1, added,
1.6050P–0T, –1T, removed; infor-
mation reporting for discharges of
indebtedness (TD 8654) 11, 14
INCOME TAX—Continued
Regulations—Continued
26 CFR 1.6081–4, amended; 1.6081–
4T, added; automatic extension of
time for filing income tax returns
(TD 8651) 11, 24
26 CFR 1.6302–4T, added; federal
tax deposits by electronic funds
transfer (TD 8661) 17, 7
26 CFR 1.6662–0, –6T, removed;
1.6662.5T, revised; 1.6662–6,
added; imposition of accuracy-
related penalty (TD 8656) 13, 9
26 CFR 301.6011–2(c)(4)(i), revised;
time for furnishing wage state-
ments upon termination of em-
ployer’s operations (TD 8636) 4,
64
26 CFR 301.6311–1, corrected; pay-
ment of tax by check or money
order (Notice 27) 18, 4
26 CFR 1.7520–3, amended; actu-
arial tables exceptions (TD 8630)
3, 19
26 CFR 301.6676–1, 301.7424–1,
removed; regulations declared ob-
solete (TD 8655) 12, 9
26 CFR 301.9100–7T, amended;
generation-skipping transfer tax
(TD 8644) 7, 16
Returns:
Form 990, church affiliated organiza-
tions exempt from filing (RP 10)
2, 17
On-line service electronic filing pro-
gram; Form 1040 (RP 20) 4, 88
Renewable electricity production credit:
1996 inflation adjustment factor and
reference prices (Notice 25) 17, 11
Rulings:
Areas in which advance rulings
willing to be issued:
Associate Chief Counsel (Domes-
tic), Associate Chief Counsel
INCOME TAX—Continued
Rulings—Continued
(Employee Benefits and Exempt
Organizations) (RP 3) 1, 86
Associate Chief Counsel (Interna-
tional) (RP 7) 1, 185
Areas in which rulings will not be
issued (RP 12) 3, 30
Employee plans and exempt organi-
zations user fees correction (RP
8A) 9, 10
Letter rulings, determination letters,
and information letters, Associate
Chief Counsel (Domestic), Associ-
ate Chief Counsel (Employee Ben-
efits and Exempt Organizations),
Associate Chief Counsel (Enforce-
ment Litigation) and Associate
Chief Counsel (International) (RP
1) 1, 8
No-rule provision, combining trans-
actions (RP 22) 5, 27 (Notice 6) 5,
27
Tax-exempt bonds, issuance pro-
cedrues (RP 16) 3, 45
Technical advice, employee plans
and exempt organizations (RP 5)
1, 129
Technical advice to the District Direc-
tors and Chiefs, Appeals Offices,
from the Associate Chief Counsel
(Domestic), Associate Chief Counsel
(Employee Benefits and Exempt
Organizations), Associate Chief
Counsel (Enforcement Litigation),
and Associate Chief Counsel (Inter-
national) (RP 2) 1, 60
Rulings and determination letters, issu-
ance procedures (RP 4) 1, 94
Tax conventions:
Competent authority procedure (RP
13) 3, 31
Relief in treaty cases (RP 14) 3, 41
User fees for employee plans and exempt
organizations (RP 8) 1, 187