[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Rules and Regulations]
[Pages 70310-70313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29494]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9023]
RIN 1545-BA39
Taxpayer Identification Number Rule Where Taxpayer Claims Treaty
Rate and Is Entitled to an Unexpected Payment
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that provide
additional guidance needed to comply with the withholding rules under
section 1441 and conforming changes to the regulations under section
6109. Specifically, these final regulations provide rules that
facilitate compliance by withholding agents where foreign individuals
who are claiming reduced rates of withholding under an income tax
treaty receive an unexpected payment from the withholding agent and do
not possess the required
[[Page 70311]]
individual taxpayer identification number.
DATES: Effective Date: These regulations are effective November 22,
2002.
Applicability Date: For dates of applicability, see Sec. Sec.
1.1441-6(h)(1) and 301.6109-1(g)(3).
FOR FURTHER INFORMATION CONTACT: Jonathan A. Sambur (202) 622-3840 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 17, 2002, the IRS and Treasury published a notice of
proposed rulemaking by cross reference to temporary regulations (REG-
159079-01) in the Federal Register (67 FR 2387), and temporary
regulations in TD 8977 (67 FR 2327), under section 1441 and conforming
changes to the regulations under section 6109 of the Internal Revenue
Code (Code). Written comments and requests for a public hearing were
solicited. Several comments were received and are discussed below. No
public hearing was requested. After consideration of all the comments,
the proposed and temporary regulations under sections 1441 and 6109 are
adopted as final regulations with no changes.
Summary of Public Comments and Explanation of Revisions
A. Sec. 1.1441-6(c) Exemption From Requirement To Furnish a Taxpayer
Identifying Number
Section 1.1441-6(c) provides an exemption from the requirement to
furnish a taxpayer identifying number (TIN) for certain types of
income.
One commentator suggested that a foreign individual receiving a
distribution of a death benefit from a U.S. retirement plan should be
allowed to claim treaty benefits without obtaining an individual
taxpayer identification number (ITIN).
This comment is not directly related to these proposed regulations.
Exemptions from the requirement to furnish a TIN were addressed in
final regulations promulgated under section 1441 (TD 8734; 1997-2 C.B.
109). The IRS and Treasury do not believe that there has been any
change in circumstances that warrants a change of the rules contained
in Sec. 1.1441-6(c).
B. Sec. 1.1441-1(e)(4)(ii)(B)(1) Indefinite Validity of a Withholding
Certificate Provided Certain Conditions Are Met
Under Sec. 1.1441-1(e)(4)(ii)(A), a Form W-8BEN ``Certificate of
Foreign Status of Beneficial Owner for United States Tax Withholding,''
generally will expire either at the end of the third calendar year
following the date the certificate was signed or when a change in
circumstances occurs that makes any information on the Form W-8BEN
incorrect, whichever is earlier. Section 1.1441-1(e)(4)(ii)(B)(1)
permits a Form W-8BEN to remain valid indefinitely, provided the
withholding agent reports at least one payment annually and the
certificate contains a TIN.
One commentator requested that a Form W-8BEN remain valid
indefinitely without regard to the requirement that it contain a TIN.
The commentator also proposed that a Form W-8BEN remain valid
indefinitely, even if the withholding agent reports no annual payments
to the beneficial owner.
This comment is not directly related to these proposed regulations.
The period of validity of a beneficial owner's withholding certificate
was addressed in final regulations promulgated under section 1441 (TD
8734). The IRS and Treasury do not believe that there has been any
change in circumstances that warrants a change of the rules contained
in Sec. 1.1441-1(e)(4)(ii)(B)(1). The IRS and Treasury continue to
believe that it is important for taxpayers to re-certify status
periodically when no payments are reported because withholding agents
would be unaware of any change in the taxpayer's status.
C. Sec. 1.1441-6(h)(2)(i) Special Acceptance Agent Requirement
The proposed regulations provide that a withholding agent, who is
also an acceptance agent, may enter into an agreement with the IRS that
permits the acceptance agent to request an ITIN on an expedited basis
because of the circumstances of payment or the unexpected nature of
payments required to be made by the payor (special acceptance agent
agreement). One commentator requested that certifying acceptance
agents, as described in Rev. Proc. 96-52 (1996-2 C.B. 372), be
permitted to utilize the expedited process, described in Sec. 1.1441-
6(h)(2), without entering into a special acceptance agent agreement
with the IRS.
The commentator's suggestion was not adopted. The purpose of
entering into a special acceptance agent agreement with the IRS is to
provide notice to the IRS that the acceptance agent is seeking to
utilize the expedited process and to have the acceptance agent agree to
follow the special procedures necessary to complete that process. In
contrast, a certifying acceptance agent agreement permits the
acceptance agent to review and certify the applicant's ability to
qualify for an ITIN. Because the purpose and scope of a certifying
acceptance agent agreement differ from the purpose and scope of the
special acceptance agent agreement, a separate agreement permitting the
use of the expedited process must be entered into between the
acceptance agent and the IRS.
D. Sec. 1.1441-6(h)(2)(ii) Unexpected Payment Requirement
In order to lessen the administrative burden on foreign individuals
receiving unexpected payments, the proposed regulations provide a
limited exception to the requirement that a foreign individual provide
a TIN to the withholding agent before obtaining a reduced rate of
withholding tax under an income tax treaty. One commentator requested
that the IRS should eliminate the unexpected payment requirement of
Sec. 1.1441-6(h)(2)(ii) and permit the use of the expedited process by
any foreign individual regardless of whether the payor or payee knows
of the impending payment.
The commentator's suggestion was not adopted. The expedited process
has been initiated in limited circumstances in order to lessen the
administrative burden on foreign individuals receiving unexpected
payments. Although the IRS is continuing to consider increasing the
availability of this expedited process in the future, the particular
administrative issue addressed in these regulations generally does not
exist with respect to expected payments. Thus, there is not a
compelling reason to extend the expedited process at this time.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. These
regulations impose no new collection of information on small entities;
therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the proposed regulations preceding these
regulations were submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Jonathan A. Sambur,
Office of the Associate Chief Counsel (International). However, other
personnel from the IRS and Treasury
[[Page 70312]]
Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties,
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1441-0 is amended by redesignating the entries
for paragraph (g) of Sec. 1.1441-6 as paragraph (h) and revising the
entry for newly designated paragraph (h), and adding new entries for
paragraphs (g) through (g)(5) to read as follows:
Sec. 1.1441-0 Outline of regulations provisions for section 1441.
* * * * *
(g) Special taxpayer identifying number rule for certain foreign
individuals claiming treaty benefits.
(1) General rule.
(2) Special rule.
(3) Requirement that an ITIN be requested during the first
business day following payment.
(4) Definition of unexpected payment.
(5) Examples.
(h) Effective dates.
* * * * *
Par. 3. Section 1.1441-1 is amended by adding paragraph
(b)(7)(i)(D) to read as follows:
Sec. 1.1441-1 Requirement for the deduction and withholding of tax on
payments to foreign persons.
* * * * *
(b) * * *
(7) * * *
(i) * * *
(D) The withholding agent has complied with the provisions of Sec.
1.1441-6(c) or (g).
* * * * *
Sec. 1.1441-1T [Removed]
Par. 4. Section 1.1441-1T is removed.
Par. 5. Section 1.1441-6 is amended as follows:
1. The fifth sentence of paragraph (b)(1) is amended by removing
the language ``and Sec. 1.1441-6T(h)'' and adding ``and Sec. 1.1441-
6(g)'' in its place.
2. Paragraph (g) is redesignated as paragraph (h) and new paragraph
(g) is added.
3. Newly designated paragraph (h) section heading is revised.
4. Newly designated paragraph (h)(1) is revised.
5. Newly designated paragraph (h)(2) is amended by removing the
language ``(g)(2)'' and adding ``(h)(2)'' in its place each place it
appears in the third and fourth sentences.
The addition and revisions read as follows:
Sec. 1.1441-6 Claim of reduced withholding under an income tax
treaty.
* * * * *
(g) Special taxpayer identifying number rule for certain foreign
individuals claiming treaty benefits--(1) General rule. Except as
provided in paragraph (c) or (g)(2) of this section, for purposes of
paragraph (b)(1) of this section, a withholding agent may not rely on a
beneficial owner withholding certificate, described in paragraph (b)(1)
of this section, that does not include the beneficial owner's taxpayer
identifying number (TIN).
(2) Special rule. For purposes of satisfying the TIN requirement of
paragraph (b)(1) of this section, a withholding agent may rely on a
beneficial owner withholding certificate, described in such paragraph,
without regard to the requirement that the withholding certificate
include the beneficial owner's TIN, if--
(i) A withholding agent, who is also an acceptance agent, as
defined in Sec. 301.6109-1(d)(3)(iv) of this chapter (the payor), has
entered into an acceptance agreement that permits the acceptance agent
to request an individual taxpayer identification number (ITIN) on an
expedited basis because of the circumstances of payment or unexpected
nature of payments required to be made by the payor;
(ii) The payor was required to make an unexpected payment to the
beneficial owner who is a foreign individual;
(iii) An ITIN for the beneficial owner cannot be received by the
payor from the Internal Revenue Service (IRS) because the IRS is not
issuing ITINs at the time of payment or any time prior to the time of
payment when the payor has knowledge of the unexpected payment;
(iv) The unexpected payment to the beneficial owner could not be
reasonably delayed to permit the payor to obtain an ITIN for the
beneficial owner on an expedited basis; and
(v) The payor satisfies the provisions of paragraph (g)(3) of this
section.
(3) Requirement that an ITIN be requested during the first business
day following payment. The payor must submit a beneficial owner payee
application for an ITIN (Form W-7 ``Application for IRS Individual
Taxpayer Identification Number'') that complies with the requirements
of Sec. 301.6109-1(d)(3)(ii) of this chapter, and also the
certification described in Sec. 301.6109-1(d)(3)(iv)(A)(4) of this
chapter, to the IRS during the first business day after payment is
made.
(4) Definition of unexpected payment. For purposes of this section,
an unexpected payment is a payment that, because of the nature of the
payment or the circumstances in which it is made, could not reasonably
have been anticipated by the payor or beneficial owner during a time
when the payor or beneficial owner could obtain an ITIN from the IRS.
For purposes of this paragraph (g)(4), a payor or beneficial owner will
not lack the requisite knowledge of the forthcoming payment solely
because the amount of the payment is not fixed.
(5) Examples. The rules of this paragraph (g) are illustrated by
the following examples:
Example 1. G, a citizen and resident of Country Y, a country
with which the United States has an income tax treaty that exempts
U.S. source gambling winnings from U.S. tax, is visiting the United
States for the first time. During his visit, G visits Casino B, a
casino that has entered into a special acceptance agent agreement
with the IRS that permits Casino B to request an ITIN on an
expedited basis. During that visit, on a Sunday, G wins $5000 in
slot machine play at Casino B and requests immediate payment from
Casino B. ITINs are not available from the IRS on Sunday and would
not again be available until Monday. G, who does not have an
individual taxpayer identification number, furnishes a beneficial
owner withholding certificate, described in Sec. 1.1441-1(e)(2), to
the Casino upon winning at the slot machine. The beneficial owner
withholding certificate represents that G is a resident of Country Y
(within the meaning of the U.S.--Y tax treaty) and meets all
applicable requirements for claiming benefits under the U.S.--Y tax
treaty. The beneficial owner withholding certificate does not,
however, contain an ITIN for G. On the following Monday, Casino B
faxes a completed Form W-7, including the required certification,
for G, to the IRS for an expedited ITIN. Pursuant to paragraph (b)
and (g)(2) of this section, absent actual knowledge or reason to
know otherwise, Casino B, may rely on the documentation furnished by
G at the time of payment and pay the $5000 to G without withholding
U.S. tax based on the treaty exemption.
Example 2. The facts are the same as Example 1, except G visits
Casino B on Monday. G requests payment Monday
[[Page 70313]]
afternoon. In order to pay the winnings to G without withholding the
30 percent tax, Casino B must apply for and obtain an ITIN for G
because an expedited ITIN is available from the IRS at the time of
the $5000 payment to G.
Example 3. The facts are the same as Example 1, except G
requests payment fifteen minutes before the time when the IRS begins
issuing ITINs. Under these facts, it would be reasonable for Casino
B to delay payment to G. Therefore, Casino B must apply for and
obtain an ITIN for G if G wishes to claim an exemption from U.S.
withholding tax under the U.S.--Y tax treaty at the time of payment.
Example 4. P, a citizen and resident of Country Z, is a lawyer
and a well-known expert on real estate transactions. P is scheduled
to attend a three-day seminar on complex real estate transactions,
as a participant, at University U, a U.S. university, beginning on a
Saturday and ending on the following Monday, which is a holiday.
University U has entered into a special acceptance agent agreement
with the IRS that permits University U to request an ITIN on an
expedited basis. Country Z is a country with which the United States
has an income tax treaty that exempts certain income earned from the
performance of independent personal services from U.S. tax. It is
P's first visit to the United States. On Saturday, prior to the
start of the seminar, Professor Q, one of the lecturers at the
seminar, cancels his lecture. That same day the Dean of University U
offers P $5000, to replace Professor Q at the seminar, payable at
the conclusion of the seminar on Monday. P agrees. P gives her
lecture Sunday afternoon. ITINs are not available from the IRS on
that Saturday, Sunday, or Monday. After the seminar ends on Monday,
P, who does not have an ITIN, requests payment for her teaching. P
furnishes a beneficial owner withholding certificate, described in
Sec. 1.1441-1(e)(2), to University U that represents that P is a
resident of Country Z (within the meaning of the U.S.--Z tax treaty)
and meets all applicable requirements for claiming benefits under
the U.S.--Z tax treaty. The beneficial owner withholding certificate
does not, however, contain an ITIN for P. On Tuesday, University U
faxes a completed Form W-7, including the required certification,
for P, to the IRS for an expedited ITIN. Pursuant to paragraph (b)
and (g)(2) of this section, absent actual knowledge or reason to
know otherwise, University U may rely on the documentation furnished
by P and pay $5000 to P without withholding U.S. tax based on the
treaty exemption.
(h) Effective dates--(1) General rule. This section applies to
payments made after December 31, 2000, except for paragraph (g) of this
section which applies to payments made after December 31, 2001.
* * * * *
Section 1.1441-6T [Removed]
Par. 6. Section 1.1441-6T is removed.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 7. The authority for part 301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 8. In Sec. 301.6109-1, paragraph (g)(3) is revised to read as
follows:
Sec. 301.6109-1 Identifying numbers.
* * * * *
(g) * * *
(3) Waiver of prohibition to disclose taxpayer information when
acceptance agent acts. As part of its request for an IRS individual
taxpayer identification number or submission of proof of foreign status
with respect to any taxpayer identifying number, where the foreign
person acts through an acceptance agent, the foreign person will agree
to waive the limitations in section 6103 regarding the disclosure of
certain taxpayer information. However, the waiver will apply only for
purposes of permitting the Internal Revenue Service and the acceptance
agent to communicate with each other regarding matters related to the
assignment of a taxpayer identifying number, including disclosure of
any taxpayer identifying number previously issued to the foreign
person, and change of foreign status. This paragraph (g)(3) applies to
payments made after December 31, 2001.
* * * * *
Sec. 301.6109-1T [Removed]
Par. 9. Section 301.6109-1T is removed.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Approved: Approved: November 13, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-29494 Filed 11-21-02; 8:45 am]
BILLING CODE 4830-01-P