n-16-08.pdf

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Part III - Administrative, Procedural and Miscellaneous

Timing of Submitting Preexisting Accounts and Periodic Certifications; Reporting of
Accounts of Nonparticipating FFIs; Reliance on Electronically Furnished Forms W-8 and
W-9

Notice 2016-08

This notice announces that the Treasury Department and the Internal Revenue
Service (IRS) intend to amend the regulations under chapter 4 (sections 1471-1474 of
the Internal Revenue Code) to: (1) modify the date for submitting to the IRS the
preexisting account certifications required of certain foreign financial institutions (FFIs);
(2) specify the period and date for submitting to the IRS the periodic certification of
compliance described in §1.1471-5(f)(1)(ii)(B) for a registered deemed compliant FFI;
and (3) modify the transitional information reporting rules for accounts of
nonparticipating FFIs to eliminate the requirement to report on gross proceeds for the
2015 year. The Treasury Department and the IRS also intend to amend the regulations
under chapters 3 and 4 to specify the circumstances under which a withholding agent
may rely on electronically furnished Forms W-8 and W-9 collected by intermediaries and
flow-through entities.
The amendments described in this notice will ease burdens on FFIs and respond
to comments regarding certain aspects of the regulations under chapters 3 and 4. Prior

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to the issuance of these amendments, taxpayers may rely on the rules described in this
notice.
I. Participating FFIs and Reporting Model 2 FFIs Preexisting Account Certifications
A. Background
Section 1.1471-4(c)(7) and section 8.03(A) of the FFI agreement (Rev. Proc.
2014-38, 2014-29 I.R.B. 131) require participating FFIs and reporting Model 2 FFIs to
certify to the IRS that they have complied with the due diligence procedures of §1.1471-
4(c) for preexisting accounts within the applicable timeframe for complying with such
procedures (“preexisting account certification”). The preexisting account certification
must be made no later than 60 days following the date that is two years after the
effective date of the FFI agreement. For example, a participating FFI or reporting Model
2 FFI that has an FFI agreement with an effective date of June 30, 2014, must submit a
preexisting account certification to the IRS by August 29, 2016.
A participating FFI or reporting Model 2 FFI also is required under §1.1471-4(f)(3)
and section 8.03 of the FFI agreement to periodically certify to the IRS that it has
complied with the terms of the FFI agreement (“periodic certification of compliance”).
Section 1.1471-4(f)(3)(i) provides the general rules for the periodic certification of
compliance and specifies that it must be submitted to the IRS no later than six months
following the end of the certification period. Notwithstanding the regulations, section
8.03 of the FFI agreement allows the periodic certification of compliance to be submitted
on or before July 1 of the calendar year following the certification period. The first
certification period begins on the effective date of the FFI agreement and ends at the
close of the third full calendar year following the effective date of the FFI agreement.

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Each subsequent certification period is every three calendar years following the
previous certification period. Thus, under the FFI agreement, if a participating FFI or
reporting Model 2 FFI has an FFI agreement with an effective date of June 30, 2014,
the first certification period for the FFI ends on December 31, 2017, and the FFI’s first
periodic certification of compliance must be made on or before July 1, 2018.
B. Modification of Timing for Participating FFI and Reporting Model 2 FFI
Preexisting Account Certifications
In response to comments, and to reduce compliance burdens on stakeholders
and streamline the implementation of the certification requirements, the Treasury
Department and the IRS intend to amend the chapter 4 regulations and the FFI
agreement to provide that the preexisting account certification must be submitted to the
IRS at the same time that the participating FFI or reporting Model 2 FFI is required to
submit its first periodic certification of compliance. In addition, the regulations under
chapter 4 will be modified to conform with the FFI agreement such that the periodic
certification of compliance must be submitted on or before July 1 of the calendar year
following the certification period, instead of no later than six months following the end of
the certification period. Therefore, the preexisting account certification will be due to the
IRS by July 1, 2018, for a participating FFI or reporting Model 2 FFI that has an FFI
agreement with an effective date of June 30, 2014, instead of by August 29, 2016.

The changes to the preexisting account certification described in this notice do
not affect the deadlines for a participating FFI or reporting Model 2 FFI to complete the
due diligence procedures for preexisting accounts under §1.1471-4(c) and the FFI
agreement, and FFIs will therefore be required to certify to the completion of those
procedures within the time required.

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II. Preexisting Account Certifications by Local FFIs and Restricted Funds and
Periodic Certifications of Compliance by Registered Deemed-Compliant FFIs

A. Background
A registered deemed-compliant FFI that is a local FFI or restricted fund is
required to make a one-time certification regarding its preexisting accounts similar to the
certification requirement of a participating FFI. See §§1.1471-5(f)(1)(i)(A)(7) and
1.1471-5(f)(1)(i)(D)(6), respectively. Restricted funds must make this certification by the
later of December 31, 2014, or six months after the date the FFI registers as a
registered deemed-compliant FFI. The chapter 4 regulations do not specify a time for
local FFIs to make this certification.
In addition, each registered deemed-compliant FFI must certify every three years
to the IRS that all of the requirements for the deemed-compliant category claimed by
the FFI have been satisfied since the later of the date the FFI registered as a registered
deemed-compliant FFI or June 30, 2014 (“periodic certification of registered deemed-
compliant status”). §1.1471-5(f)(1)(ii)(B). The chapter 4 regulations do not specify a
time for submitting the periodic certification of registered deemed-compliant status or
the date on which the first certification period begins.
B. Modification of Timing of Preexisting Account Certification by Local FFIs
and Restricted Funds and Periodic Certification of Compliance by
Registered Deemed-Compliant FFIs

The chapter 4 regulations will be amended to provide that local FFIs and
restricted funds must submit their one-time certifications regarding preexisting accounts
at the same time that they submit the first periodic certification of registered deemed-
compliant FFI status. The chapter 4 regulations will also be modified to provide that
registered deemed-compliant FFIs must provide the periodic certification of registered

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deemed-compliant FFI status on or before July 1 of the calendar year following the end
of the certification period. In addition, the regulations will provide that the first
certification period begins on the later of the date the FFI registered as a deemed-
compliant FFI or June 30, 2014, and ends at the close of the third full calendar year
following such date. Subsequent certification periods will continue to be the three-
calendar-year period following the previous certification period. For example, a
registered deemed-compliant FFI that is a local FFI and that has such status on June
30, 2014, will be required to make its one-time certification regarding preexisting
accounts and its first periodic certification of registered deemed-compliant FFI status on
or before July 1, 2018.
III. Transitional Reporting of Accounts of Nonparticipating FFIs
A. Background
Under §1.1471-4(d)(2)(ii)(F) a participating FFI or registered deemed-compliant
FFI that maintains an account of a nonparticipating FFI (including a limited branch and
limited FFI treated as a nonparticipating FFI) must provide transitional reporting to the
IRS of all foreign reportable amounts paid to or with respect to the account for each
calendar year 2015 and 2016. A foreign reportable amount means foreign source
payments described in §1.1471-4(d)(4)(iv) (which includes gross proceeds).
Alternatively, a participating FFI or registered deemed-compliant FFI may report all
income, gross proceeds, and redemptions paid to or with respect to an account held by
a nonparticipating FFI, instead of reporting only foreign reportable amounts. Section
1.1471-4(d)(2)(ii)(F). Similar transitional reporting rules apply to reporting Model 2 FFIs

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for accounts of nonparticipating FFIs for calendar years 2015 and 2016. Section 6.04 of
the FFI agreement.
Under §1.1471-4(d)(7)(ii)(B) and section 6 of the FFI agreement, participating
FFIs and reporting Model 2 FFIs are excepted from reporting gross proceeds paid to
U.S. accounts and accounts held by owner-documented FFIs for calendar year 2015.
B. Amendments to the Transitional Reporting Rules under §1.1471-
4(d)(2)(ii)(F) for Nonparticipating FFIs
Commenters have noted the burdens of requiring gross proceeds reporting for
accounts held by nonparticipating FFIs in advance of when such amounts have to be
reported for a U.S. account or account of an owner-documented FFI. The transitional
reporting for accounts of nonparticipating FFIs under §1.1471-4(d)(2)(ii)(F) was not
intended to require more information to be reported than would be required for U.S.
accounts or accounts held by owner-documented FFIs under §1.1471-4(d). In response
to these comments, the regulations will be amended to provide that, with respect to
calendar year 2015, a participating FFI, reporting Model 2 FFI, or registered deemed-
compliant FFI is not required to report gross proceeds paid to or with respect to an
account held by a nonparticipating FFI.
IV. Electronically Furnished Forms W-8 and W-9
A. Background
Section 1.1441-1(e)(4)(iv) provides that a withholding agent may establish a
system for a beneficial owner or payee to electronically furnish a Form W-8, an
acceptable substitute Form W-8, or such other form as the IRS may prescribe, and
provides requirements for such a system. Section 1.1441-1(e)(4)(iv)(B) requires,
among other things, that the electronic system provide that the Form W-8 be signed

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electronically and under penalties of perjury by the person whose name is on the Form
W-8. When the requirements set forth in §1.1441-1(e)(4)(iv) are met, a withholding
agent may accept the electronic version of the Form W-8 as an original. These
requirements for an electronic system also apply for chapter 4 purposes as provided in
§1.1471-3(c)(6)(iv). Announcement 98-27 (1998-1 C.B. 865) provides similar standards
for purposes of establishing an electronic system for the Form W-9.
A foreign intermediary or flow-through entity that has not entered into a qualified
intermediary, foreign withholding partnership, or foreign withholding trust agreement is a
nonqualified intermediary (NQI), nonwithholding foreign partnership (NWP), or
nonwithholding foreign trust (NWT) under the chapter 3 regulations. An NQI, NWP, or
NWT that receives a payment on behalf of its account holders, partners, owners, or
beneficiaries is required to provide documentation to its withholding agent so that the
withholding agent may reliably associate the payment (or portion of the payment) with
valid documentation upon which it may rely to determine its requirement to withhold
under §1.1441-1(b). The regulations under section 1441 further provide that a
withholding agent that receives documentation for a payee or beneficial owner through
an NQI, NWP, or NWT (including a U.S. branch or territory financial institution
described in §1.1441-1(b)(2)(iv), other than a U.S. branch or territory financial institution
that is treated as a U.S. person) may rely on such documentation unless the withholding
agent knows that the documentation is unreliable or incorrect as described §1.1441-
7(b)(10) (referred to as the standards of knowledge). Similar standards of knowledge
rules are provided for chapter 4 purposes in §1.1471-3(e)(4)(vi).
B. Modification of Standards of Knowledge Requirements

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Commenters have requested that the regulations specify that a withholding agent
may rely on a Form W-8 or W-9 for a beneficial owner or payee that has been indirectly
obtained by the withholding agent through an NQI, NWP, or NWT, irrespective of
whether the NQI, NWP, or NWT collects the underlying Form W-8 through an electronic
system described in §1.1441-1(e)(4)(iv) or Form W-9 through an electronic system
described in Announcement 98-27. The commenters note that, in the absence of such
guidance, current industry practice is for withholding agents to reject these forms
because they cannot confirm the authenticity of the electronic signature. As a result,
the payee or beneficial owner may be subject to withholding under chapter 3 or 4 or
backup withholding under section 3406 based on an applicable presumption rule.
To reduce burden and avoid unnecessary overwithholding, the Treasury
Department and the IRS intend to provide in the standards of knowledge in §§1.1441-
7(b)(10) and 1.1471-3(e)(4)(vi)(A)(2) that a withholding agent may rely on a Form W-8
or W-9 that has been collected from the beneficial owner or payee of the payment
through an electronic system maintained by an NQI, NWP, or NWT and furnished to the
withholding agent by such NQI, NWP, or NWT, provided that the NQI, NWP, or NWT is
a direct or indirect account holder of the withholding agent and the withholding agent
obtains from the NQI, NWP, or NWT a written statement confirming that the electronic
documentation was generated from a system that meets the requirements in §1.1441-
1(e)(4)(iv), §1.1471-3(c)(6)(iv), or Announcement 98-27, as applicable, and the
withholding agent does not have actual knowledge that such statement is incorrect.

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DRAFTING INFORMATION
The principal authors of this notice are Nancy Lee and Tara Ferris of the Office of
Associate Chief Counsel (International). For further information regarding this notice,
contact Ms. Lee or Ms. Ferris at (202) 317-6942 (not a toll-free call).