AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations; removal of temporary regulations.

SUMMARY:

This document contains final regulations that provide guidance on certain due diligence and reporting rules applicable to persons making certain U.S. source payments to foreign persons, and guidance on certain aspects of reporting by foreign financial institutions on U.S. accounts. The final regulations affect persons making certain U.S.-related payments to certain foreign persons and foreign financial institutions reporting certain U.S. accounts.

DATES:

 

Effective date. These regulations are effective on January 2, 2020.

Applicability date. For dates of applicability, see §§ 1.1441-1(f)(1) and (3), 1.1441-2(f)(2), 1.1441-6(i)(1) and (3), 1.1441-7(g), 1.1471-4(j)(2), and 1.6049-6(e).

FOR FURTHER INFORMATION CONTACT:

John Sweeney at (202) 317-6942 (not a toll free number).

SUPPLEMENTARY INFORMATION:

Background

On January 6, 2017, the Department of the Treasury (Treasury Department) and the IRS published final and temporary regulations (the chapter 3 temporary regulations) under chapter 3 of subtitle A of the Internal Revenue Code (the Code) and chapter 61 of subtitle F of the Code (TD 9808) in the Federal Register (82 FR 2046, as corrected at 82 FR 29719). On the same date, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-134247-16) in the Federal Register (82 FR 1645, as corrected at 82 FR 43314 and 82 FR 49549) cross-referencing the temporary regulations (the chapter 3 proposed regulations). Also on January 6, 2017, the Treasury Department and the IRS published final and temporary regulations (the chapter 4 temporary regulations) under chapter 4 of subtitle A of the Code (TD 9809) in the Federal Register (82 FR 2124, as corrected at 82 FR 27928). On the same date, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-103477-14) in the Federal Register (82 FR 1629, as corrected at 82 FR 43314) that cross-referenced the temporary regulations and included other proposed regulations.^[1] The proposed regulations cross-referencing the chapter 4 temporary regulations (redesignated as REG-132857-17) are referred to in this preamble as the chapter 4 proposed regulations.

On September 25, 2017, the Treasury Department and the IRS issued Notice 2017-46, 2017-41 I.R.B. 275, and on March 5, 2018, the Treasury Department and the IRS issued Notice 2018-20, 2018-12 I.R.B. 444. These notices provide that the Treasury Department and the IRS intend to amend certain provisions in the chapter 3 temporary regulations to narrow the scope of certain documentation requirements and provide a phase-in for implementation of those rules in response to comments. Notices 2017-46 and 2018-20 provide that taxpayers may rely on the guidance provided in these notices until they are incorporated into final regulations. These notices are further described in Part I of the Summary of Comments and Explanation of Revisions section of this preamble.

On December 18, 2018, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-132881-17) in the Federal Register (83 FR 64757) that proposed amendments to the regulations under chapters 3 and 4 to reduce burden under those regulations (the 2018 proposed regulations). The 2018 proposed regulations respond to Executive Orders 13777 and 13789, which instructed the Secretary of the Treasury to reduce regulatory burdens on taxpayers. The 2018 proposed regulations proposed modifications to certain provisions that are also in the chapter 3 temporary regulations and the chapter 4 temporary regulations. Certain of the proposed modifications relate to the requirement that a withholding certificate or treaty statement provided with documentary evidence by a treaty claimant that is an entity identify the applicable limitation on benefits provision that the entity meets in order to be eligible for treaty benefits. See §§ 1.1441-1(e)(4)(ii)(A)(2) and 1.1441-6(c)(5)(i) of the 2018 proposed regulations. Other proposed modifications relate to the documentation that a withholding agent may rely on to treat an address provided by an account holder that is subject to a hold mail instruction as a permanent residence address for purposes of an account holder's claim of foreign status or benefits under an income tax treaty. See §§ 1.1441-1(c)(38) and 1.1471-1(b)(62) and (99) of the 2018 proposed regulations. As discussed further in Parts V and VI of the Summary of Comments and Explanation of Revisions section of this preamble, these final regulations incorporate the modifications included in the 2018 proposed regulations with respect to those requirements. The Treasury Department and the IRS intend to finalize the remaining provisions of the 2018 proposed regulations in separate guidance at a future date.

No public hearing was requested or held with respect to the chapter 3 proposed regulations or the chapter 4 proposed regulations, though written comments were received and are available at www.regulations.gov or upon request. A public hearing was held with respect to the 2018 proposed regulations, but the topics raised in the hearing do not relate to the provisions in the 2018 proposed regulations that are finalized in this Treasury Decision. Written comments on the 2018 proposed regulations were received and are available at www.regulations.gov or upon request. After consideration of the comments received, the chapter 3 proposed regulations and the chapter 4 proposed regulations are adopted, with modifications (including the modifications generally described in the preceding paragraph to take into account certain provisions in the 2018 proposed regulations), as final regulations in this Treasury Decision, and the corresponding temporary regulations are removed.

This document also includes a limited number of technical corrections and conforming changes to final regulations under chapters 3, 4, and 61.

Summary of Comments and Explanation of Revisions

I. Requirement for a Withholding Agent To Obtain a Foreign Taxpayer Identification Number and Date of Birth

Section 1.1441-1T(e)(2)(ii)(B) provides that, beginning January 1, 2017, a beneficial owner withholding certificate provided to document an account that is maintained at a U.S. branch or office of a financial institution is required to contain the account holder's foreign taxpayer identification number (foreign TIN) and, in the case of an individual account holder, the date of birth, in order for the withholding agent to treat such withholding certificate as valid. A withholding certificate that does not contain the account holder's date of birth will not be invalid if the withholding agent has the account holder's date of birth in its files. If an account holder does not have a foreign TIN, the account holder is required to provide a reasonable explanation for its absence. A foreign TIN obtained by a withholding agent is required to be reported on Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding).

After publication of the chapter 3 temporary regulations, the Treasury Department and the IRS received comments about the difficulty of obtaining foreign TINs and dates of birth from account holders by January 1, 2017. Several comments requested a delay of one or two years before the foreign TIN and date of birth requirements apply. One comment requested a one-year extension of the validity period for withholding certificates that are scheduled to expire on or before December 31, 2017 (unless there is a change in circumstance). Several comments noted that the requirement to obtain additional information from customers who had recently provided a withholding certificate to a withholding agent may damage the withholding agent's customer relationships, and suggested transitional rules to ease the redocumentation burden. These comments suggested various phase-in rules that would allow a withholding agent to treat a withholding certificate provided before the foreign TIN and date of birth requirements apply that would otherwise be valid as continuing to be valid until the withholding certificate otherwise expires. For example, for withholding certificates that have a three-year validity period, comments suggested that a withholding agent be required to obtain a foreign TIN and date of birth at the end of the three-year period. For withholding certificates that are valid indefinitely, comments suggested that withholding agents be allowed two or three years to collect new withholding certificates with a foreign TIN and date of birth.

Comments requested that a withholding certificate not be treated as invalid if the withholding agent obtains an account holder's foreign TIN and date of birth in any manner (for example, orally, in a written statement, or otherwise in account files). Comments also requested clarifications of terms used in § 1.1441-1T(e)(2)(ii)(B). Additionally, comments requested clarification of what constitutes a reasonable explanation for the absence of a foreign TIN.

Two comments requested that a withholding agent's failure to obtain an account holder's foreign TIN or date of birth not cause a withholding agent to treat a withholding certificate as invalid and withhold on payments made to the account holder. One comment suggested that an information reporting penalty apply instead. Another comment requested that the IRS waive penalties for a failure to include a foreign TIN on Form 1042-S for 2017 and 2018 under sections 6721 and 6722 (relating to penalties for failing to file correct information returns or to furnish correct payee statements, respectively).

In response to these comments, the Treasury Department and the IRS issued Notice 2017-46, which provides that the Treasury Department and the IRS intend to amend § 1.1441-1T(e)(2)(ii)(B) to generally narrow its application and provide additional time for a withholding agent to collect a foreign TIN (or a reasonable explanation for the absence of a foreign TIN) and date of birth from an account holder. Notice 2017-46 provides a one-year delay in the implementation of the foreign TIN and date of birth requirements for payments made on or after January 1, 2018 (rather than payments made on or after January 1, 2017). Notice 2017-46 also provides transitional rules that phase in the requirement to obtain a foreign TIN for withholding certificates provided before January 1, 2018. These transitional rules generally allow a withholding agent to continue to treat an otherwise valid withholding certificate as valid even if it does not contain a foreign TIN (or a reasonable explanation for the absence of a foreign TIN) until January 1, 2020 (provided there is no change in circumstance and the withholding certificate does not expire). For payments made on or after January 1, 2020, the transitional rules permit a withholding agent to treat a withholding certificate obtained before January 1, 2018, as valid if the withholding agent obtains the account holder's foreign TIN on a written statement or if the withholding agent otherwise has the account holder's foreign TIN in the withholding agent's files (provided there is no change in circumstance that requires a revised withholding certificate and the withholding certificate does not expire). These transitional rules were intended to align with the transitional period (the end of 2019, as also provided in Notice 2017-46) permitted for reporting Model 1 FFIs to obtain and report required U.S. TINs for their preexisting accounts that are U.S. reportable accounts.

Notice 2017-46 also includes exceptions for an account holder that is (i) resident in a jurisdiction identified by the IRS on a list of jurisdictions that do not issue foreign TINs, (ii) a government, international organization, foreign central bank, or resident of a U.S. territory, or (iii) resident in a jurisdiction with which the United States does not have an agreement relating to the exchange of tax information in force. In addition, the notice limits the requirement to obtain a foreign TIN and date of birth to payments of U.S. source income reportable on Form 1042-S.

Consistent with § 1.1441-1T(e)(2)(ii)(B), Notice 2017-46 provides that the foreign TIN and date of birth requirements apply for purposes of determining the validity of a withholding certificate. These final regulations do not adopt the comment suggesting that an information reporting penalty that is imposed on the withholding agent should apply rather than treating the withholding certificate as invalid and thereby requiring that withholding at the full 30-percent rate be applied on payments to the account holder that are reportable on Form 1042-S. The Treasury Department and the IRS determined that it is more appropriate to apply the consequences of noncompliance to the account holder that remains insufficiently documented rather than imposing a penalty on the withholding agent. Further, the amount that may be assessed based on a penalty for incorrect information reporting is in general small compared to the withholding that would result from an invalid withholding certificate and therefore is unlikely to be a sufficient incentive for an account holder to provide the missing information in many cases.

After the publication of Notice 2017-46, some jurisdictions with laws that restrict the collection or disclosure of foreign TINs of their residents requested that their residents not be required to provide foreign TINs to withholding agents for purposes of § 1.1441-1T(e)(2)(ii)(B). In response to those requests, the Treasury Department and the IRS issued Notice 2018-20, which provides that the IRS intends to expand its list of jurisdictions that do not issue foreign TINs to their residents to include jurisdictions that request to be included on the list, even if the jurisdiction issues foreign TINs to its residents. The list of jurisdictions for which a withholding agent is not required to collect a foreign TIN of a resident in such jurisdiction is available at https://www.irs.gov/​businesses/​corporations/​list-of-jurisdictions-that-do-not-issue-foreign-tins (or at any successor website or as provided in subsequent published guidance).

These final regulations incorporate the chapter 3 temporary regulations and the provisions in Notice 2017-46 and Notice 2018-20 with minor changes. Comments received after the publication of those notices are described in the following paragraphs.

Several comments requested that withholding agents be permitted to obtain a foreign TIN through other means (such as orally, on a statement, or from the withholding agent's files) when it is not provided on a withholding certificate signed on or after January 1, 2018 (rather than only withholding certificates signed before January 1, 2018, as provided in Notice 2017-46). One of those comments noted that a foreign TIN in a withholding agent's files may have been collected orally. While withholding agents may rely on foreign TINs in their files for withholding certificates signed before January 1, 2018 without investigating whether they were obtained orally, the Treasury Department and the IRS have determined that this allowance should be limited to the transition period because an oral statement does not provide adequate assurance of accuracy and may raise recordkeeping concerns. However, to provide flexibility for withholding agents, the Treasury Department and the IRS have determined that a separate written statement is an acceptable way for a withholding agent to collect an account holder's foreign TIN, provided that the account holder represents its foreign TIN in a signed written statement that acknowledges that such statement is a part of the withholding certificate and the withholding agent associates the statement with the account holder's withholding certificate. While the Treasury Department and the IRS expect that withholding agents will generally obtain foreign TINs on withholding certificates, this allowance permits withholding agents to cure incomplete withholding certificates by obtaining the foreign TIN on a separate statement rather than having to obtain a new withholding certificate. The requirement that the signed written statement include an acknowledgment that such statement is part of the withholding certificate ensures that the statement is subject to penalties of perjury to the same extent as any other information provided on the withholding certificate.

A comment requested an exception to the foreign TIN requirement for “onshore accounts that would, by analogy, qualify as excluded financial accounts.” These final regulations define the term “account” for purposes of § 1.1441-1(e)(2)(ii)(B) by cross-referencing the definition of a financial account under § 1.1471-5(b), thereby incorporating the exceptions provided in that paragraph. Therefore, the Treasury Department and the IRS do not believe that additional changes are needed to the definition.

The same comment requested the elimination of the foreign TIN requirement for a beneficial owner withholding certificate of a foreign financial institution (FFI) because jurisdictions with a reciprocal Model 1 IGA may not need the foreign TINs of financial institutions. This comment is not adopted because there is no exception for an account held by a financial institution in the Model 1 IGA jurisdiction in the definition of the term “FATCA partner reportable account” (which defines accounts with respect to which the United States provides information to the partner jurisdiction).

These final regulations clarify the application of the exception to the requirement that a withholding certificate include a foreign TIN for an account holder that is a government, international organization, foreign central bank, or resident of a U.S. territory by adding an example specifying that an account holder may claim foreign government status either under section 892 or otherwise when the withholding agent may rely upon a claim of exemption either under § 1.1441-8 (generally on an IRS Form W-8-EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting) or under § 1.1441-7 (generally on an IRS Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)).

These final regulations also clarify the standard of knowledge applicable to a date of birth by providing that a withholding agent may rely on a date of birth provided on a withholding certificate unless it knows or has reason to know that the date of birth is incorrect. This is the same standard of knowledge applicable to foreign TINs. Finally, these final regulations incorporate the allowance in the instructions for Form W-8 that a reasonable explanation may be provided on a separate attached statement associated with the withholding certificate.

II. Nonqualified Intermediary Withholding Statements

Under the chapter 3 regulations, a nonqualified intermediary is generally required to provide to a withholding agent a Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting), a withholding statement, and the documentation for each payee for which the intermediary receives a payment. A withholding statement must allocate the payment to each payee and provide each payee's name, address, TIN (if any), type of documentation provided, and type of recipient (applying the recipient category codes listed on Form 1042-S). Because this information may also be included on a payee's documentation that is associated with the withholding statement, the chapter 3 temporary regulations provide that a nonqualified intermediary may provide a withholding statement that does not include all of the information described in the preceding sentence, provided that this information can be found on withholding certificates associated with the nonqualified intermediary withholding statement and certain other requirements are met. One of those requirements is that the nonqualified intermediary represent to the withholding agent that the information on the withholding certificates associated with the withholding statement is not inconsistent with any other account information the nonqualified intermediary has for purposes of determining the withholding rate applicable to each payee.

A comment requested clarification of the standard of knowledge applicable to a nonqualified intermediary for purposes of the representation that the information on the payees' withholding certificates is not inconsistent with any other account information the nonqualified intermediary has for purposes of determining the withholding rate applicable to each payee. These final regulations clarify that the general standards of knowledge that are applicable to withholding agents apply to a nonqualified intermediary for reliance on payee documentation for purposes of making the representation described in the preceding sentence.

As noted in the first paragraph of this Part II, a nonqualified intermediary must provide on its withholding statement the recipient category code for each payee. A comment noted that nonqualified intermediaries generally do not have familiarity with determining the appropriate chapter 4 recipient code for Form 1042-S reporting purposes because nonqualified intermediaries generally do not file Form 1042-S and the chapter 4 recipient categories listed on Form 1042-S differ from the chapter 4 status categories listed on a Form W-8 that may be provided by a payee. Because a withholding agent making a payment to the nonqualified intermediary is required to file Form 1042-S, the comment suggested that the withholding agent is better able to determine the appropriate chapter 4 recipient code than a nonqualified intermediary. The comment recommended that the requirement for chapter 4 recipient codes be eliminated for certain withholding statements or that the IRS provide information on the relationship between chapter 4 recipient status on Forms W-8 and Form 1042-S. The Treasury Department and the IRS have determined that it is important to continue to obtain chapter 4 recipient codes but agree with the comment that withholding agents may be better able to determine the appropriate chapter 4 recipient code than a nonqualified intermediary. In response to the comment, these final regulations provide that a nonqualified intermediary may provide a withholding statement that does not include a chapter 4 recipient code for one or more payees if the withholding agent is able to determine the appropriate recipient code based on other information included on, or associated with, the withholding statement or that is otherwise contained in the withholding agent's records with respect to the payee. See § 1.1441-1(e)(3)(iv)(C)(3)(ii).

The provisions described in this Part II also apply to nonqualified intermediary withholding statements associated with withholdable payments under chapter 4 by cross-reference to § 1.1441-1(e)(3)(iv)(C)(3). See § 1.1471-3(c)(3)(iii)(B)(5).

III. Electronic Signatures for Purposes of Chapters 3 and 4

Section 1.1441-1T(e)(4)(i)(B) permits a withholding agent to accept an electronically signed withholding certificate if the withholding certificate reasonably demonstrates to the withholding agent that it has been electronically signed by the recipient identified on the form or a person authorized by the recipient to sign the form. The regulation includes an example that illustrates when a withholding agent may treat a withholding certificate as validly signed based on a review of a withholding certificate that reasonably demonstrates that it has been electronically signed (as opposed to appearing to have a typed name as a signature). This provision applies in addition to the allowance provided under § 1.1441-1(e)(4)(iv) for a withholding agent to establish its own system for a beneficial owner or payee to electronically furnish to the withholding agent (and sign electronically) a Form W-8. A comment requested that the example be removed because it could be interpreted as providing a minimum standard for accepting an electronically signed withholding certificate and may become inconsistent with future changes in technology for providing electronic signatures. Two comments also requested that the final regulations allow reliance on an electronically signed Form W-9 (Request for Taxpayer Identification Number and Certification), and one comment requested that a withholding agent be permitted to rely on a withholding certificate collected through an electronic system maintained by a nonqualified intermediary or flow-through entity if the nonqualified intermediary or flow-through entity provides a written statement confirming that the electronic system meets the requirements of § 1.1441-1(e)(4)(iv), as described in Notice 2016-08, 2016-6 I.R.B. 304.

The Treasury Department and the IRS are of the view that a clear illustration of when a withholding agent can readily determine that a withholding certificate is electronically signed under current technology that is frequently used in the industry is warranted as it demonstrates the difference between an acceptable electronic signature in contrast to merely having a printed name or unrecognizable notation in place of a name. Further, § 1.1441-1T(e)(4)(i)(B) clearly states that this illustration is simply an example of one set of facts that satisfies the rule. Thus, this example is retained in these final regulations. To provide additional flexibility, these final regulations permit a withholding agent to consider, in addition to the withholding certificate itself, other documentation or information the withholding agent has that supports that a withholding certificate was electronically signed, provided that the withholding agent does not have actual knowledge that the documentation or information is incorrect. These final regulations do not add a specific allowance for Form W-9 in § 1.1441-1(e)(4)(i)(B) because rules regarding reliance on an electronically signed Form W-9 are provided in separate guidance, such as the Requestor Instructions to Form W-9. Additionally, in light of the general rule in § 1.1441-1(e)(4) that provides that the rules in such paragraph are applicable to Form W-8, Form 8233, and certain documentary evidence, the specific exclusion in § 1.1441-1T(e)(4)(i)(B) for Form W-9 is unnecessary and therefore not included in these final regulations.

The provisions described in this Part III also apply to chapter 4 by cross-reference to § 1.1441-1(e)(4)(i)(B). See § 1.1471-3(c)(3)(i).

IV. Withholding Certificates and Withholding Statements Furnished Through a Third Party Repository for Purposes of Chapters 3 and 4

Section 1.1441-1T(e)(4)(iv)(E) provides the circumstances under which a withholding certificate (and in certain circumstances a withholding statement) received electronically by a withholding agent from a third party repository will be considered furnished to the withholding agent by the person whose name is on the certificate. These circumstances include that a withholding agent be able to associate a withholding certificate received from a third party repository with a specific request for the withholding certificate and a specific authorization from the person (or agent of the person) providing the certificate with respect to each specific payment or each specific obligation maintained by the withholding agent. A comment requested clarification on whether a specific request and specific authorization is required each time a withholding agent makes a payment. The standards for requiring a separate request and separate authorization to obtain a withholding certificate from a third party repository were not intended to deviate from the standards for when a withholding agent may continue to rely on a withholding certificate furnished directly by the person providing the withholding certificate (or such person's agent). Therefore, these final regulations clarify that a separate request and separate authorization to obtain a withholding certificate from a third party repository is not required for each payment made by a withholding agent when the withholding agent is otherwise permitted to rely on the withholding certificate on an obligation-by-obligation basis or as otherwise permitted under § 1.1441-1(e)(4)(ix).

Other comments requested that § 1.1441-1T(e)(4)(iv)(E) specifically provide that a withholding agent may rely on a Form W-9 obtained from a third party repository. However, the validity requirements for reliance on a Form W-9 are contained in the section 3406 regulations (and related guidance under that section) and are not generally amended solely for purposes of a withholding agent's reliance in the case of a payment subject to withholding under section 1441. As a result, these final regulations are not amended to add an allowance for a withholding agent's reliance on a Form W-9 obtained from a third party repository, and taxpayers should continue to refer to the other guidance applicable to reliance on a Form W-9. Additionally, the specific exclusion in § 1.1441-1T(e)(4)(iv)(E) for Form W-9 is not included in these final regulations for the same reason that the exclusion for Form W-9 is not included in § 1.1441-1(e)(4)(i)(B), as described in Part III of this Summary of Comments and Explanation of Revisions of this preamble.

As the final chapter 4 regulations adopted by this Treasury Decision cross reference the final chapter 3 regulations for when a withholding agent may treat a withholding certificate received from a third party repository as provided by a payee, the above-described modifications to § 1.1441-1T(e)(4)(iv)(E) also apply to a withholding certificate or withholding statement relied upon for chapter 4 purposes.

V. Limitation on Benefits for Treaty Claims on Withholding Certificates and Treaty Statements Provided With Documentary Evidence for Purposes of Chapter 3

Under the regulations under chapter 3, in order for a withholding agent to apply a reduced rate of withholding based on an entity's claim for benefits under a tax treaty, the withholding agent must obtain either (i) a withholding certificate that includes a treaty claim on the certificate, or (ii) documentary evidence and a separate treaty statement. Under the chapter 3 temporary regulations, a treaty statement must, among other things, identify the specific limitation on benefits (LOB) provision of the applicable treaty on which the beneficial owner relies to claim the treaty benefit. Section 1.1441-6(b)(1) provides that generally, absent actual knowledge or reason to know otherwise, a withholding agent may rely on a claim that a beneficial owner is entitled to a reduced rate of withholding based upon an income tax treaty if the withholding agent can reliably associate the payment with a beneficial owner withholding certificate, or, in the case of a payment made outside the United States with respect to an offshore obligation, documentary evidence and a treaty statement. This general standard of knowledge is modified in two situations in the chapter 3 temporary regulations. First, § 1.1441-6T(b)(1)(ii) provides that a withholding agent's reason to know that a beneficial owner's claim to a reduced rate of withholding under an income tax treaty is unreliable or incorrect includes when the beneficial owner claims benefits under an income tax treaty that does not exist or is not in force, and that a withholding agent may determine whether a tax treaty exists or in force by checking a list maintained on the IRS website. Second, § 1.1441-6T(b)(1)(i) provides that a withholding agent may rely on a beneficial owner's claim regarding its reliance on a specific LOB provision absent actual knowledge that such claim is unreliable or incorrect.

The chapter 3 temporary regulations also add a validity period of three years for a treaty statement provided with documentary evidence in order to provide parity with the validity period for a withholding certificate containing a treaty claim, enhance the reliability and increase the accuracy of the claims, and help ensure that information is updated when ownership thresholds or activity requirements in a particular treaty have changed. The chapter 3 temporary regulations provide a transitional rule under which accounts opened and documented with documentary evidence and a treaty statement prior to January 6, 2017 (preexisting accounts) will expire on January 1, 2019.

A comment requested that the standard of knowledge applicable to a LOB provision should be limited to determining whether a tax treaty exists and is in force. The Treasury Department and IRS are of the view that such limitation would be inappropriate because a determination of whether a treaty exists and is in force is a general rule applicable to a treaty claim and not specifically related to a limitation on benefits provision. Moreover, the actual knowledge standard applicable to a limitation on benefits provision is already sufficiently limited as it should not generally require a withholding agent to obtain facts it does not normally request or render a conclusion it could not readily make from the information it already has otherwise collected. Thus, this comment is not adopted, and these final regulations adopt the standard of knowledge in the chapter 3 temporary regulations for reliance on a LOB provision associated with a treaty claim made on a withholding certificate without modification. See § 1.1441-6(b)(1)(i) and (ii).

Comments also noted the burden of complying with the new LOB requirement for treaty statements associated with documentary evidence, including difficulties in obtaining new treaty statements by the January 1, 2019, expiration date given the large number of account holders providing treaty statements before January 6, 2017. The comments requested an additional one-year period for withholding agents to obtain new treaty statements with LOB representations to replace treaty statements obtained before January 6, 2017. A comment also requested a further explanation of the reasoning for the three-year validity period for a treaty statement.

In response to these comments, the 2018 proposed regulations include revisions to the LOB requirement and validity period for treaty statements in the chapter 3 temporary regulations. The 2018 proposed regulations extend the time for withholding agents to obtain treaty statements with the specific LOB provisions identified for preexisting accounts to January 1, 2020 (rather than the January 1, 2019 date included in the chapter 3 temporary regulations). These final regulations incorporate this extension for preexisting accounts.

The 2018 proposed regulations also add an exception to the three-year validity period for treaty statements associated with documentary evidence provided by tax-exempt organizations (other than tax-exempt pension trusts or pension funds), governments, and publicly traded corporations. With this exception, the validity period for treaty statements is more closely aligned with the validity period for treaty claims on withholding certificates. The Treasury Department and the IRS have also determined that, apart from this exception, three years is an appropriate validity period for treaty statements and treaty claims because it requires the entity to periodically redetermine whether it continues to meet the LOB provision.

A comment to the 2018 proposed regulations requested that the exception to the three-year validity period for treaty statements provided by tax-exempt organizations, governments, and publicly traded corporations, be extended to apply to withholding certificates used by such entities to make treaty claims. However, a withholding certificate contains not only a treaty claim, but also information and representations about the entity making the treaty claim (including representations relevant for chapter 4 purposes). Therefore, it is not appropriate for this exception to be extended to withholding certificates used to make treaty claims. Therefore, these final regulations do not adopt this comment and generally incorporate the same exception to the three-year validity period for treaty statements that is provided in the 2018 proposed regulations. However, these final regulations do not include the record retention requirement included in the 2018 proposed regulations for treaty statements from publicly traded corporations because the Treasury Department and the IRS have determined that a retention requirement in this case is unnecessary for information that is publicly available.

These final regulations also include the same modification included in the 2018 proposed regulations to correct an inadvertent omission of the applicable standard for a withholding agent's reliance on the beneficial owner's identification of a LOB provision on a treaty statement, incorporating the same actual knowledge standard that applies to a withholding certificate used for a treaty claim.

A qualified intermediary, withholding foreign partnership, and withholding foreign trust may rely on the amendments described in this Part V until they are incorporated into the applicable withholding agreement.

VI. Permanent Residence Address Subject To Hold Mail Instruction for Purposes of Chapters 3 and 4

Sections 1.1441-1T(c)(38)(ii) and 1.1471-1T(b)(99) allow a withholding agent to treat an address provided by a beneficial owner or account holder as that person's permanent residence address even if the address is subject to a hold mail instruction, provided that the withholding agent obtains documentary evidence establishing the person's residence in the country in which the person claims to be a resident for tax purposes. Comments requested that the hold mail rule be eliminated, and if it is not eliminated that a withholding agent be allowed to rely on documentary evidence establishing a person's foreign status (rather than the person's residency in a particular country) unless the person is claiming treaty benefits, and requested clarification on the definition of the term “hold mail instruction” and the categories of documentary evidence that can be relied upon.

The Treasury and the IRS have determined that the hold mail rule is necessary in order to ensure that taxpayers identify a true permanent residence address. In response to the other comments, the 2018 proposed regulations included proposed modifications to the requirements for reliance on an address subject to a hold mail instruction. The 2018 proposed regulations provide that the documentary evidence required in order to treat an address that is provided subject to a hold mail instruction as a permanent residence address is documentary evidence that supports the person's claim of foreign status or, for a person claiming treaty benefits, documentary evidence that supports the person's residence in the country where the person claims treaty benefits. Regardless of whether the person claims treaty benefits, the 2018 proposed regulations allow a withholding agent to rely on documentary evidence described in § 1.1471-3(c)(5)(i), without regard to whether the documentation contains a permanent residence address.

A comment also requested the removal of any limitations on reliance on a permanent residence address subject to a hold mail instruction because many account holders prefer to receive electronic correspondence rather than paper mail. In response to this comment, the 2018 proposed regulations added a definition of a hold mail instruction to clarify that a hold mail instruction does not include a request to receive all correspondence (including account statements) electronically. Because no comments were received on the 2018 proposed regulations specific to the modified requirements for reliance on an address subject to a hold mail instruction, those provisions of the 2018 proposed regulations are included in these final regulations. A qualified intermediary, withholding foreign partnership, and withholding foreign trust may rely on the amendments described in this Part VI until they are incorporated into the applicable withholding agreement.

VII. Technical Corrections, Conforming Change, and Applicability Dates

The final regulations in TD 9808 modified § 1.1441-1(e)(3)(iv)(B) (general requirements for withholding statements provided by nonqualified intermediaries) and (f)(1) (applicability date) of the chapter 3 regulations. The last sentence of modified § 1.1441-1(e)(3)(iv)(B) and the first sentence of (f)(1), however, include typographical errors, which are corrected in these final regulations. In addition, the final regulations in TD 9808 modified § 1.1461-1(c)(1)(i) to allow a withholding agent to furnish a recipient copy of Form 1042-S electronically. These final regulations make a conforming change to § 1.6049-6(e)(4) to allow a payor to furnish a recipient copy of Form 1042-S electronically to a nonresident alien individual that is paid deposit interest reportable under § 1.6049-4(b)(5). To clarify that the 90-day grace period applies to a change in circumstance that results from a jurisdiction ceasing to be treated as having an IGA in effect, the text in § 1.1471-3T(c)(6)(ii)(E)(4) is moved to § 1.1471-3(c)(6)(ii)(E)(3) (which provides the 90-day period for changes in circumstance). Finally, these final regulations make ministerial changes to the applicability date provision in § 1.1441-1(f) to combine the applicability dates of these final regulations with regulations issued under section 871(m) that previously were contained in § 1.1441-1(f)(3) and (f)(5) in § 1.1441-1(f)(3), and clarify the applicability dates of §§ 1.1441-2 (with respect to certain payments) and 1.1441-6 (with respect to identification of limitation on benefits provisions).

Special Analyses

I. Regulatory Planning and Review

This regulation is not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

These final regulations reduce certain information collection burdens that were included in the chapter 3 temporary regulations. For purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) (PRA), these reductions in reporting burdens will be reflected in the PRA submissions associated with Forms W-8 and 1042-S.

In response to comments on the chapter 3 proposed regulations, these final regulations reduce the information collection burden by permitting taxpayers to use alternative methods of providing documentation to withholding agents and to provide less information on certain documentation. These final regulations also reduce information collection burden by permitting taxpayers to provide certain documentation in a less burdensome manner. The provisions reducing collections of information are in §§ 1.1441-1(e)(2)(ii)(B), (e)(3)(iv)(C)(3)(ii) and (e)(4)(i)(B) and 1.6049-6(e)(4). Section 1.1441-1(e)(2)(ii)(B) allows payees to provide to a withholding agent their foreign TIN on a separate statement rather than on a withholding certificate, for withholding certificates provided after January 1, 2018. This allowance provides flexibility for a payee to use other methods of transmitting information and permits a withholding agent to continue to treat a withholding certificate as valid rather than requesting a new withholding certificate from the payee. Section 1.1441-1(e)(3)(iv)(C)(3)(ii) permits nonqualified intermediaries to provide withholding statements to withholding agents that omit certain information (a chapter 4 recipient code) that was previously required. This allowance provides more flexibility for a nonqualified intermediary to provide to a withholding agent a Form W-8IMY that is treated as valid. Section 1.1441-1(e)(4)(i)(B) provides an alternative method for a withholding agent to determine whether a withholding certificate is electronically signed, which provides flexibility for withholding agents that are verifying the validity of such certificates. Section 1.6049-6(e)(4) permits withholding agents to provide Form 1042-S to a payee electronically rather than in hard copy.

The reductions in reporting burden provided in these final regulations will be reflected in the PRA submission associated with Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY (OMB control number 1545-1621) and the PRA submission associated with Form 1042-S (OMB control number 1545-0096).

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books and records relating to a collection 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.

III. Regulatory Flexibility Act

It is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6).

This rule primarily affects withholding agents, such as financial institutions, that make U.S.-connected payments to foreign payees. For purposes of the RFA, small financial institutions are those with less than $600 million in assets. The Treasury Department and the IRS do not have data readily available to assess the number of small entities potentially affected by these regulations. Even if a substantial number of domestic small entities were affected by the final regulations, the Treasury Department and the IRS have determined that the economic impact to these entities will not be significant. These final regulations reduce the collection of information requirements that are currently applicable under existing rules under chapters 3 and 4 in TDs 9808 and 9809. Those rules include detailed requirements for how a withholding agent identifies a payee, documents the payee's status, and reports to the IRS and the payee. Those information collections were certified previously by the Treasury Department and the IRS as not resulting in a significant economic impact on a substantial number of small business entities. The final regulations include a limited number of changes to the temporary regulations that reduce the burden of withholding agents. The burden-reducing revisions of these final regulations provide benefits for both small and large entities because these final regulations allow a withholding agent to collect a foreign TIN from a payee on a separate statement; allow certain intermediaries to provide withholding statements that omit certain information (specifically, a chapter 4 recipient code) that was previously required; provide an alternative method for a withholding agent to determine whether a withholding certificate is electronically signed; and allow withholding agents to provide payee statements electronically rather than in paper form.

Pursuant to section 7805(f) of the Code, the proposed regulations preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Association for comment on its impact on small business, and no comments were received.

IV. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $154 million. This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

V. Executive Order 13132: Federalism

Executive Order 13132 (titled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This final rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

Drafting Information

The principal authors of these regulations are Charles Rioux, Nancy Erwin, and John Sweeney, Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations.

Effect on Other Documents

Section 4 of Notice 2016-08 (2016-6 I.R.B. 304) is obsolete as of January 2, 2020.

Sections 4 and 5 of Notice 2017-46 (2017-41 I.R.B. 275) are obsolete as of January 2, 2020.

Statement of Availability of IRS Documents

The IRS notices cited in this preamble are published in the Internal Revenue Bulletin and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

List of Subjects in 26 CFR Part 1

• Income taxes
• Reporting and recordkeeping requirements

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is 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:

1. Revising the entry for § 1.1441-1(e)(2)(ii)(B).

2. Adding entries for § 1.1441-1(e)(2)(ii)(B)( 1) through (6) and (e)(4)(iv)(F).

3. Revising the entry for § 1.1441-1(f)(3).

The revision and additions read as follows:

Par. 3. Section 1.1441-1 is amended by:

1. Revising paragraphs (b)(7)(ii)(B), (c)(2)(ii), (c)(3)(ii), (c)(38), and (e)(2)(ii)(B).

2. Removing “§ 1.1471-3(c)(3)(ii)(B)( 2)(iii)” and adding in its place “§ 1.1471-3(c)(3)(iii)(B)(2)(iii)” at the end of the last sentence of paragraph (e)(3)(iv)(B).

3. Revising paragraphs (e)(3)(iv)(C)( 3), (e)(4)(i)(B), and (e)(4)(ii)(A)(2).

4. Adding a sentence to the end of paragraph (e)(4)(ii)(D)( 1).

5. Revising paragraphs (e)(4)(iv)(C) and (E).

6. Adding paragraph (e)(4)(iv)(F).

7. Revising paragraphs (f)(1) and (3).

8. Removing paragraphs (f)(4) and (5).

The revisions and additions read as follows:

Par. 4. Section 1.1441-1T is removed.

Par. 5. Section 1.1441-2 is amended by revising paragraphs (a)(8) and (f) to read as follows:

Par. 6. Section 1.1441-2T is removed.

Par. 7. Section 1.1441-4 is amended by removing paragraph (h).

Par. 8. Section 1.1441-6 is amended by:

1. Revising paragraphs (b)(1)(i) and (ii).

2. Redesignating Example 1 in paragraph (b)(2)(iv) as paragraph (b)(2)(iv)(A), Example 2 in paragraph (b)(2)(iv) as paragraph (b)(2)(iv)(B), Example 3 in paragraph (b)(2)(iv) as paragraph (b)(2)(iv)(C), and Example 4 as paragraph (b)(2)(iv)(D).

3. Revising paragraph (c)(5)(i).

4. Revising the first sentence of paragraph (i)(1).

5. Revising paragraph (i)(3).

The revisions and addition read as follows:

Par. 9. Section 1.1441-6T is removed.

Par. 10. Section 1.1441-7 is amended by adding a new third sentence in paragraph (b)(4)(i) and by revising paragraphs (b)(10)(iv) and (g) to read as follows:

Par. 11. Section 1.1441-7T is removed.

Par. 12. Section 1.1471-0 is amended by adding entries for § 1.1471-3(c)(3)(iii)(B)(5), § 1.1471-4(d)(2)(ii)(G), and § 1.1474-1(d)(4)(vii) to read as follows:

Par. 13. Section 1.1471-1 is amended by revising paragraph (b)(99) to read as follows:

Par. 14. Section 1.1471-1T is removed.

Par. 15. Section 1.1471-3 is amended by:

1. Revising paragraphs (c)(1) and (c)(3)(iii)(B)( 5).

2. Revising the third sentence of paragraph (c)(6)(ii)(E)( 3).

3. Revising paragraphs (c)(7)(ii) and (d)(6)(i)(F).

The revisions and addition read as follows:

Par. 16. Section 1.1471-3T is removed.

Par. 17. Section 1.1471-4 is amended by revising paragraphs (c)(2)(ii)(B)(2)(iii), (d)(2)(ii)(G), (d)(4)(iv)(C), (d)(4)(iv)(D) introductory text, (d)(7) introductory text, and (j)(2) to read as follows:

Par. 18. Section 1.1471-4T is removed.

Par. 19. Section 1.1474-1 is amended by revising paragraph (d)(4)(vii) to read as follows:

Par. 20. Section 1.1474-1T is removed.

Par. 21. Section 1.6049-6 is amended by:

1. Adding a sentence to the end of paragraph (e)(4).

2. Revising the second sentence of paragraph (e)(5) and adding a new third sentence to paragraph (e)(5).

The additions and revision read as follows:

Footnotes