Publication 515

Cat. No. 15019L Contents

Withholding
What's New .................. 1
Department
of the Reminders . . . . . . . . . . . . . . . . . . . 1

of Tax on
Treasury
Internal Introduction . . . . . . . . . . . . . . . . . . 2
Revenue

Nonresident
Service Withholding of Tax . . . . . . . . . . . . . . 2

Persons Subject to Chapter 3 or

Aliens and
Chapter 4 Withholding . . . . . . . . . 4

Documentation . . . . . . . . . . . . . . . . 9

Foreign Entities Income Subject to Withholding . . . . . 23

Withholding on Specific Income . . . . . 25

Foreign Governments and Certain

For use in 2017 Other Foreign Organizations . . . . 39

U.S. or Foreign Taxpayer

Identification Numbers . . . . . . . 40

Depositing Withheld Taxes . . . . . . . . 41

Returns Required . . . . . . . . . . . . . . 42

Partnership Withholding on
Effectively Connected
Income . . . . . . . . . . . . . . . . . 44

U.S. Real Property Interest . . . . . . . . 46

Definitions . . . . . . . . . . . . . . . . . . 50

Tax Treaties . . . . . . . . . . . . . . . . . 51

How To Get Tax Help . . . . . . . . . . . 51

Index . . . . . . . . . . . . . . . . . . . . . 54

Future Developments
For the latest information about developments
related to Publication 515, such as legislation
enacted after it was published, go to
www.irs.gov/pub515.

What's New
Qualified intermediaries and qualified de­
rivatives dealers. This publication has been
updated to include some information on quali­
fied derivatives dealers. See Qualified interme­
diary and Qualified derivatives dealers, later.
For additional guidance on amounts subject to
section 871(m), see the regulations under sec­
tion 871(m), the related chapter 3 regulations,
and any other guidance released thereunder.

Reminders
Get forms and other information faster and easier at: Deposit interest paid to certain nonresident
• IRS.gov (English) • IRS.gov/Korean (한국어)
alien individuals. Deposit interest of $10 or
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)
• IRS.gov/Chinese (中文) more paid to certain nonresident alien individu­
• IRS.gov/Vietnamese (TiếngViệt)
als must be reported on Form 1042­S. See

Jan 12, 2017

Deposit interest paid to certain nonresident Comments and suggestions. We welcome Tax Withholding and Reporting
alien individuals. your comments about this publication and your (Individuals)
suggestions for future editions.
Exemption from requirement to withhold for W­8BEN­E Certificate of Status of
certain payments to qualified securities You can send us comments from Beneficial Owner for United States
lenders. If you made U.S.­source substitute www.irs.gov/formspubs. Click on “More Infor­ Tax Withholding and Reporting
dividend payments to qualified securities lend­ mation” and then on “Give us feedback.” (Entities)
ers, you may be exempt from withholding tax on Or you can write to:
W­8ECI Certificate of Foreign Person's
the payments. See Amounts paid to qualified
Internal Revenue Service Claim That Income Is Effectively
securities lenders.
Tax Forms and Publications Connected With the Conduct of a
Electronic deposits. You must make all de­ 1111 Constitution Ave. NW, IR­6526 Trade or Business in the United
posits of taxes paid with respect to Form Washington, DC 20224 States
1042­S (including taxes withheld under either
chapter 3 or chapter 4) electronically. W­8EXP Certificate of Foreign
We respond to many letters by telephone. Government or Other Foreign
Substitute forms. The official Form 1042­S is Therefore, it would be helpful if you would in­ Organization for United States Tax
the standard for substitute forms. All substitute clude your daytime phone number, including Withholding and Reporting
forms must comply with the rules set out in Pub­ the area code, in your correspondence.
lication 1179. A substitute of Form 1042­S, W­8IMY Certificate of Foreign
Although we cannot respond individually to
Copy A, must be an exact copy of the official Intermediary, Foreign Flow­Through
each comment received, we do appreciate your
form. If it is not, the form may be rejected as in­ Entity, or Certain U.S. Branches for
feedback and will consider your comments as
correct and the IRS may impose penalties. The United States Tax Withholding and
we revise our tax products.
IRS provides several means of obtaining the Reporting
most frequently used tax forms, including elec­ Ordering forms and publications. Visit W­8 Inst. Instructions for the Requester of
tronically. For details on the requirements of www.irs.gov/formspubs to download forms and Forms W­8BEN, W­8BEN­E,
substitute forms, see Publication 1179. publications. Otherwise, you can go to W­8ECI, W­8EXP, and W­8IMY
www.irs.gov/orderforms to order current and
Filing electronically. If you file Form 1042­S prior­year forms and instructions. Your order W­9 Request for Taxpayer Identification
electronically, you will use the Filing Information should arrive within 10 business days. Number and Certification
Returns Electronically (FIRE) system. You get
to the system through the Internet at fire.irs.gov. Tax questions. If you have a tax question 941 Employer's QUARTERLY Federal
not answered by this publication, check Tax Return
For files submitted on the FIRE system, it is
the responsibility of the filer to verify the results IRS.gov and How To Get Tax Help at the end of 945 Annual Return of Withheld Federal
of the transmission within 5 business days. The this publication. Income Tax
IRS will not mail error reports for files that are
1042 Annual Withholding Tax Return for
bad. See Publication 1187 for information on Useful Items U.S. Source Income of Foreign
the requirements for filing Form 1042­S elec­ You may want to see:
tronically. Persons

Requests for extensions on Form 8809 Publication 1042­S Foreign Person's U.S. Source
must be filed electronically. Requests on Income Subject to Withholding
15 (Circular E), Employer's Tax Guide
Form 8809 for an extension of time to file Form 1042­T Annual Summary and Transmittal
1042­S must be made electronically if the re­ 15­A Employer's Supplemental Tax Guide of Forms 1042­S
quest is for more than one payer. See Exten­
sion to file Form 1042­S with the IRS. 15­B Employer's Tax Guide to Fringe 8233 Exemption from Withholding on
Benefits Compensation for Independent (and
Photographs of missing children. The IRS is Certain Dependent) Personal
a proud partner with the National Center for 51 (Circular A), Agricultural Employer's Services of a Nonresident Alien
Missing & Exploited Children® (NCMEC). Pho­ Tax Guide Individual
tographs of missing children selected by the 505 Tax Withholding and Estimated Tax
Center may appear in this publication on pages 8966 FATCA Report
that would otherwise be blank. You can help 519 U.S. Tax Guide for Aliens See How To Get Tax Help at the end of this
bring these children home by looking at the publication for information about getting publi­
901 U.S. Tax Treaties
photographs and calling 1­800­THE­LOST cations and forms.
(1­800­843­5678) if you recognize a child. 1187 Specifications for Electronic Filing of
Form 1042­S, Foreign Person's U.S.
Introduction Source Income Subject to
Withholding
Withholding of Tax
This publication is for withholding agents who In most cases, a foreign person is subject to
5124 FATCA XML User Guide
pay income to foreign persons, including non­ U.S. tax on its U.S. source income. Most types
resident aliens, foreign corporations, foreign of U.S. source income received by a foreign
Form (and Instructions)
partnerships, foreign trusts, foreign estates, for­ person are subject to U.S. tax of 30%. A re­
eign governments, and international organiza­ SS­4 Application for Employer duced rate, including exemption, may apply if
tions. Specifically, it describes the persons re­ Identification Number there is a tax treaty between the foreign per­
sponsible for withholding (withholding agents), son's country of residence and the United
the types of income subject to withholding, and W­2 Wage and Tax Statement
States. The tax is generally withheld (chapter 3
the information return and tax return filing obli­ W­4 Employee's Withholding Allowance withholding) from the payment made to the for­
gations of withholding agents. In addition to dis­ Certificate eign person.
cussing the rules that apply generally to pay­
ments of U.S. source income to foreign W­4P Withholding Certificate for Pension The term “chapter 3 withholding” is used in
persons, it also contains sections on the with­ or Annuity Payments this publication descriptively to refer to with­
holding that applies to the disposition of U.S. W­7 Application for IRS Individual holding required under sections 1441, 1442,
real property interests and the withholding by Taxpayer Identification Number and 1443 of the Internal Revenue Code. In most
partnerships on income effectively connected cases, chapter 3 withholding describes the
with the active conduct of a U.S. trade or busi­ W­8BEN Certificate of Foreign Status of withholding regime that requires withholding on
ness. Beneficial Owner for United States a payment of U.S. source income. Payments to

Page 2 Publication 515 (2017)

foreign persons, including nonresident alien in­ qualified intermediary, withholding foreign part­ distributable net income consists of an amount
dividuals, foreign entities, and governments, nership, or withholding foreign trust in accord­ subject to withholding. To the extent a U.S. trust
may be subject to chapter 3 withholding. With­ ance with the terms of its withholding agree­ is required to distribute an amount subject to
holding may also be required on a payment to ment, discussed later. withholding but does not actually distribute the
the extent required under chapter 4. “Chapter 4” amount, it must withhold on the foreign benefi­
refers to chapter 4 of Subtitle A (sections 1471 Liability for tax. As a withholding agent, you ciary's allocable share at the time the income is
through 1474) of the Internal Revenue Code. are personally liable for any tax required to be required to be reported on Form 1042­S.
See Chapter 4 Withholding Requirements, later. withheld. This liability is independent of the tax
liability of the foreign person to whom the pay­ Chapter 4
Chapter 3 withholding does not include ment is made. If you fail to withhold and the for­
! withholding under section 1445 of the Withholding Requirements
eign payee fails to satisfy its U.S. tax liability,
CAUTION Code (see U.S. Real Property Interest,
then both you and the foreign person are liable You are a withholding agent for purposes of
later) or under section 1446 of the Code (see for tax, as well as interest and any applicable chapter 4 if you are a U.S. or foreign person, in
Partnership Withholding on Effectively Connec­ penalties. whatever capacity acting, that has control, re­
ted Income, later).
The applicable tax will be collected only ceipt, custody, disposal, or payment of a with­
once. If the foreign person satisfies its U.S. tax holdable payment. Similar rules for determining
A withholding agent (defined next) is the
liability, you are not liable for the tax but remain who is a withholding agent as those described
person responsible for withholding on payments
liable for any interest and penalties for failure to in Chapter 3 Withholding Requirements, earlier,
made to a foreign person. However, a withhold­
withhold. also apply for chapter 4. For purposes of chap­
ing agent that can reliably associate the pay­
ment with documentation (discussed later) from ter 4, a withholding agent includes a participat­
Determination of amount to withhold. You ing foreign financial institution (FFI) (including a
a U.S. person is not required to withhold. In ad­ must withhold on the gross amount subject to reporting Model 2 FFI) or registered
dition, a withholding agent may apply a reduced chapter 3 withholding. You cannot reduce the
rate of withholding (including an exemption deemed­compliant FFI to the extent such FFI
gross amount by any deductions. However, see makes a withholdable payment.
from withholding) if it can reliably associate the Scholarships and Fellowship Grants and Pay
payment with documentation from a beneficial for Personal Services Performed, later, for
owner that is a foreign person entitled to a re­ Under chapter 4 of the Code, a withholding
when a deduction for a personal exemption
duced rate of withholding. agent that makes a withholdable payment on or
may be allowed.
after July 1, 2014, to a payee that is an FFI must
If an amount subject to chapter 3 withhold­ If the determination of the source of the in­
withhold 30% on the payment unless the with­
ing is also a withholdable payment and chap­ come or the amount subject to tax depends on
holding agent is able to treat the FFI as a partic­
ter 4 withholding is applied to the payment, no facts that are not known at the time of payment,
ipating FFI, deemed­compliant FFI, or exempt
withholding is required under chapter 3. See you must withhold an amount sufficient to en­
beneficial owner. A withholding agent must also
Chapter 4 Withholding Requirements, later. sure that at least 30% of the amount subse­
withhold 30% on a withholdable payment made
quently determined to be subject to withholding
on or after July 1, 2014, to a payee that is a for­
is withheld. In no case, however, should you
Withholding Agent withhold more than 30% of the total amount
eign entity other than an FFI (i.e., a nonfinancial
foreign entity, or NFFE) that fails to identify its
paid. You may elect to hold 30% of the payment
substantial U.S. owners (or certify that it does
in escrow until the earlier of the date that the
not have any substantial U.S. owners) unless
Chapter 3 amount of income from U.S. sources or the tax­
the payment is excepted from withholding un­
Withholding Requirements able amount can be determined or one year
der the regulations to section 1472. A participat­
from the date the amount is placed in escrow, at
ing FFI is a withholding agent under chapter 4
You are a withholding agent if you are a U.S. or which time the withholding becomes due or, to
and is required to withhold on a withholdable
foreign person, in whatever capacity acting, that the extent that withholding is not required, the
payment to the extent required under the FFI
has control, receipt, custody, disposal, or pay­ escrowed amount must be paid to the payee.
agreement, including on a payment made to an
ment of an amount subject to chapter 3 with­
account holder that the FFI is required to treat
holding. A withholding agent may be an individ­ When to withhold. Withholding is required at
as a recalcitrant account holder. A reporting
ual, corporation, partnership, trust, association, the time you make a payment of an amount
Model 1 FFI is required to withhold under chap­
nominee (under section 1446 of the Code), or subject to withholding. A payment is made to a
ter 4 to the extent required in the applicable In­
any other entity, including any foreign interme­ person if that person realizes income, whether
tergovernmental Agreement (IGA). A registered
diary, foreign partnership, or U.S. branch of cer­ or not there is an actual transfer of cash or other
deemed­compliant FFI (other than a reporting
tain foreign banks and insurance companies. property. A payment is considered made to a
Model 1 FFI) is required to withhold under
You may be a withholding agent even if there is person if it is paid for that person's benefit. For
chapter 4 to the extent required under the con­
no requirement to withhold from a payment or example, a payment made to a creditor of a
ditions applicable to its registered
even if another person has withheld the re­ person in satisfaction of that person's debt to
deemed­compliant FFI status. See Treasury
quired amount from the payment. the creditor is considered made to the person.
regulations section 1.1471­5(f)(1) for a descrip­
A payment also is considered made to a person
Although several persons may be withhold­ tion of the types of registered deemed­compli­
if it is made to that person's agent.
ing agents for a single payment, the full tax is ant FFIs that may have withholding require­
A U.S. partnership should withhold when ments.
required to be withheld only once. In most ca­ any distributions that include amounts subject
ses, the U.S. person who pays an amount sub­ to withholding are made. However, if a foreign See Notice 2014­33, 2014­21 I.R.B.
ject to chapter 3 withholding is the person re­ partner's distributive share of income subject to 1033, for information on a transition pe­
sponsible for withholding. However, other withholding is not actually distributed, the U.S.
!
CAUTION riod for the implementation of chap­
persons may be required to withhold. For exam­ partnership must withhold on the foreign part­ ter 4.
ple, a payment made by a flow­through entity or ner's distributive share of the income on the
nonqualified intermediary that knows, or has earlier of the date that a Schedule K­1 (Form
reason to know, that the full amount of chap­ 1065) is provided or mailed to the partner or the Generally, a withholdable payment is a pay­
ter 3 withholding was not done by the person due date for furnishing that schedule. If the dis­ ment of U.S. source FDAP income and, begin­
from which it receives a payment is required to tributable amount consists of effectively con­ ning in 2019, gross proceeds from the sale or
do the appropriate withholding since it also falls nected income, see Partnership Withholding on other disposition of property of a type that can
within the definition of a withholding agent. In Effectively Connected Income, later. produce interest or dividends that are U.S.
addition, withholding must be done by any source FDAP income. Specific exceptions to
A U.S. trust is required to withhold on the withholdable payments apply instead of the ex­
amount includible in the gross income of a for­ emptions from withholding or taxation provided
eign beneficiary to the extent the trust's under chapter 3. See Income Subject to

Publication 515 (2017) Page 3

Withholding, later, for more information on pay­ You may be required to file Form 1099 and, associate all or a part of a payment with docu­
ments of U.S. source FDAP income that are ex­ if appropriate, backup withhold, even if you do mentation upon which you can rely, then you
cepted from the definition of withholdable pay­ not make the payments directly to that U.S. per­ must apply certain presumption rules, dis­
ment. son. For example, you are required to report in­ cussed later.
come paid to a foreign intermediary or
If a withholding agent makes a payment flow­through entity that collects for a U.S. per­ Chapter 4 withholding applies to withholda­
subject to both chapter 4 withholding and chap­ son subject to Form 1099 reporting. However, ble payments made to an entity payee that is an
ter 3 withholding, the withholding agent must you may not be required to report on Form 1099 FFI unless the withholding agent is able to treat
apply the withholding provisions of chapter 4, if you make a payment to a participating FFI or the FFI as a participating FFI, deemed­compli­
and need not withhold on the payment under registered deemed­compliant FFI that provides ant FFI, or exempt beneficial owner. Chapter 4
chapter 3 to the extent that it has withheld under a withholding statement allocating the payment withholding also applies to withholdable pay­
chapter 4. to a chapter 4 withholding rate pool of U.S. pay­ ments made to a passive NFFE that fails to
ees. See Identifying the Payee, later, for more identify its substantial U.S. owners (or certify
information. Also see Section S. Special Rules that it does not have any substantial U.S. own­
Similar rules for withholding agent liability for
for Reporting Payments Made Through Foreign ers). You must establish the payee’s chapter 4
tax, determination of amount to withhold, and
Intermediaries and Foreign Flow­Through Enti­ status to determine if withholding applies by ap­
when to withhold as those described in Chap­
ties on Form 1099 in the General Instructions plying the documentation requirements of chap­
ter 3 Withholding Requirements, earlier, also
for Certain Information Returns. ter 4, generally by obtaining a Form W­8 (or, un­
apply for chapter 4.
der an applicable IGA, a similar agreed form)
Foreign persons who provide a Form
associated with the payment, or other docu­
Forms 1042 and 1042­S TIP W­8 (or applicable documentary evi­ mentation for payments made outside of the
dence when permitted in lieu of a Form
Reporting Obligations W­8) are exempt from backup withholding and
United States on offshore obligations. See
Treasury regulations section 1.1471­3(d) for de­
Form 1099 reporting.
tails on these documentation requirements.
You are required to report payments subject to Withholding under chapter 4 also applies to ac­
chapter 3 withholding on Form 1042­S and to Form 8966 reporting. For chapter 4 purpo­ count holders of a participating FFI or registered
file a tax return on Form 1042. (See Returns ses, you may be required to report on Form deemed­compliant FFI that the FFI is required
Required, later.) You are also required to report 8966, FATCA Report, if you make a withholda­ to treat as recalcitrant account holders.
withholdable payments to which chapter 4 with­ ble payment to an entity you agree to treat as
holding was (or should have been) applied on an owner­documented FFI or to a passive This section titled Persons Subject to Chap­
Form 1042­S and to file a tax return on Form NFFE. See Returns Required, later. ter 3 or Chapter 4 Withholding applies to both
1042 to report the payments. An exception from chapters 3 and 4 except where otherwise indi­
reporting may apply for chapter 3 purposes to Wages paid to employees. If you are the em­ cated and except where the text clearly applies
individuals who are not required to withhold ployer of a nonresident alien, you generally to one or the other (e.g., reduced rates and ex­
from a payment and who do not make the pay­ must withhold taxes at graduated rates. See emptions under income tax treaties).
ment in the course of their trade or business. A Pay for Personal Services Performed, later.
similar exception from reporting for chapter 4
purposes may apply to an individual making a Effectively connected income by partner­ Identifying the Payee
withholdable payment outside the course of the ships. A withholding agent that is a partnership
individual’s trade or business (including as an (whether U.S. or foreign) is also responsible for In most cases, the payee is the person to whom
agent with respect to making or receiving such withholding on its income effectively connected you make the payment, regardless of whether
payment). with a U.S. trade or business that is allocable to that person is the beneficial owner of the in­
foreign partners. See Partnership Withholding come. However, there are situations in which
Withholding and on Effectively Connected Income, later, for the payee is a person other than the one to
whom you actually make a payment.
more information.
Reporting Obligations
(Other Than Forms 1042 U.S. real property interest. A withholding U.S. agent of foreign person. For purposes
and 1042­S Reporting) agent also may be responsible for withholding if of chapter 3, if you make a payment to a U.S.
a foreign person transfers a U.S. real property person and you have actual knowledge that the
interest to the agent, or if it is a corporation, U.S. person is receiving the payment as an
partnership, trust, or estate that distributes a agent of a foreign person, you must treat the
Form 1099 reporting and backup withhold­
U.S. real property interest to a shareholder, payment as made to the foreign person. How­
ing. You also may be responsible as a payer
partner, or beneficiary that is a foreign person. ever, if the U.S. person is a financial institution,
for reporting on Form 1099 payments made to a
See U.S. Real Property Interest, later. you may treat the institution as the payee provi­
U.S. person. You must withhold 28% (backup
ded you have no reason to believe that the insti­
withholding rate) from a reportable payment
tution will not comply with its own obligation to
made to a U.S. person that is subject to Form
1099 reporting if any of the following apply. Persons Subject withhold under chapter 3.
For chapter 4 purposes, if you make a with­
The U.S. person has not provided its tax­
payer identification number (TIN) in the
to Chapter 3 or holdable payment to a U.S. person and you
manner required. Chapter 4 Withholding have actual knowledge that the U.S. person is
receiving the payment as an intermediary or
The IRS notifies you that the TIN furnished
by the payee is incorrect. agent of a foreign person, you must treat the
Chapter 3 withholding applies only to payments foreign person as the payee. However, if you
There has been a notified payee underre­ made to a payee that is a foreign person. It
porting. make a withholdable payment to a U.S. finan­
does not apply to payments made to U.S. per­ cial institution or a U.S. insurance broker (to the
There has been a payee certification fail­ sons.
ure. extent the withholdable payment is a payment
Usually, you determine the payee's status of an insurance premium) that is receiving the
In most cases, a TIN must be provided by a payment as an intermediary or agent, you may
as a U.S. or foreign person or, if you are making
U.S. non­exempt recipient (a U.S. person sub­ treat the financial institution or insurance broker
a withholdable payment to an entity (or are an
ject to Form 1099 reporting) on Form W­9, Re­ as the payee if you do not have reason to know
FFI making a payment to an account holder),
quest for Taxpayer Identification Number and that the financial institution or insurance broker
the payee's chapter 4 status, based on the doc­
Certification. A payer files a tax return on Form will not comply with its obligations to withhold
umentation that person provides. See Docu­
945, Annual Return of Withheld Federal Income under chapter 4. See Definitions, later, for the
mentation, later. However, if you have received
Tax, for backup withholding. definition of financial institution.
no documentation or you cannot reliably

Page 4 Publication 515 (2017)

 If the payment is not subject to chapter 3 Chapter 4 payees. For purposes of chapter 4, ties or foreign intermediaries. However, the
withholding and is not a withholdable payment, however, a foreign entity that is a flow­through payee is the partnership itself if the partnership
you must treat the payment as made to a U.S. entity is a payee with respect to a payment is claiming treaty benefits on the basis that it is
person and not as a payment to a foreign per­ (other than income effectively connected with not treated as fiscally transparent in the treaty
son. You may be required to report the payment the conduct of a U.S. trade or business) if the jurisdiction and that it meets all the other re­
on Form 1099 and, if applicable, backup with­ flow­through entity is: quirements for claiming treaty benefits. If a part­
hold. An FFI that is not a participating FFI or ner is a foreign flow­through entity or a foreign
deemed­compliant FFI, or restricted dis­ intermediary, you apply the payee determina­
Disregarded entities. In general, a business tributor (an entity that operates as a distrib­ tion rules to that partner to determine the pay­
entity that is not a corporation and that has a utor that holds debt or equity interests in a ees.
single owner may be disregarded as an entity restricted fund as a nominee and meets For purposes of chapter 4, a foreign partner­
separate from its owner (a disregarded entity) the requirements described in Treasury ship is a payee of a withholdable payment if the
for federal tax purposes. The payee of a pay­ regulations section 1.1471­5(f)(4)) receiv­ partnership is a withholding foreign partnership
ment made to a disregarded entity is the owner ing the payment on behalf of its owners (in that is not acting as an agent or intermediary
of the entity. such a case, the entity is a nonparticipating with respect to the payment. If the partnership is
If the owner of the entity is a foreign person, FFI subject to withholding under chap­ not a withholding foreign partnership, the pay­
you must apply chapter 3 withholding unless ter 4); or ees are the partners (looking through any part­
you can treat the foreign owner as a beneficial An excepted NFFE that is not acting as an ners that are flow­through entities that are not
owner entitled to a reduced rate of withholding. agent or intermediary with respect to the treated as payees under the chapter 4 regula­
If the owner is a U.S. person, you do not ap­ payment. tions).
ply chapter 3 withholding. However, you may be If you make a withholdable payment to a
required to report the payment on Form 1099 flow­through entity that is not one of the types Example 1. A nonwithholding foreign part­
and, if applicable, backup withhold. You may described above, you must treat the partner, nership has three partners: a nonresident alien
assume that a foreign entity is not a disregar­ beneficiary, or owner (as applicable) of the individual; a foreign corporation; and a U.S. citi­
ded entity unless you can reliably associate the flow­through entity as the payee for chapter 4 zen. You make a payment of U.S. source inter­
payment with documentation provided by the purposes (similar to the determination of the est to the partnership. Assume that the payment
owner or you have actual knowledge or reason payee for chapter 3 purposes) (looking through is subject to chapter 3 withholding but is not a
to know that the foreign entity is a disregarded partners, beneficiaries, and owners that are withholdable payment. The partnership gives
entity. themselves flow­through entities that are not you a Form W­8IMY with which it associates
one of the types described above). Form W­8BEN from the nonresident alien; Form
Special chapter 4 rules. If you make a with­ W­8BEN­E from the foreign corporation; and
holdable payment to a disregarded entity Form W­9 from the U.S. citizen. The partnership
In most cases, you treat a payee as a also gives you a complete withholding state­
owned by an FFI, for chapter 4 purposes you
flow­through entity if it provides you with a Form ment that enables you to associate a part of the
must determine whether you must treat the pay­
W­8IMY (see Documentation, later) on which it interest payment to each partner.
ment as made to a payee that is a nonpartici­
claims such status. You also may be required to You must treat all three partners as the pay­
pating FFI (to which chapter 4 withholding ap­
treat the entity as a flow­through entity under ees of their part of the interest payment as if the
plies) or a payee that is an FFI with another
the presumption rules, discussed later. payment were made directly to them. Report
chapter 4 status (such as a participating FFI). If
you make a withholdable payment to a disre­ the payments to the nonresident alien and the
garded entity that is treated as a limited branch For purposes of chapter 3, you must deter­ foreign corporation on Forms 1042­S. Report
of a participating FFI or a registered deemed­ mine whether the owners or beneficiaries of a the payment to the U.S. citizen on Form
compliant FFI, you must treat the payment as flow­through entity are U.S. or foreign persons, 1099­INT. You do not need to determine the
made to a nonparticipating FFI and withhold how much of the payment relates to each owner chapter 4 status of the partnership because the
30% of the payment. See the Instructions to or beneficiary, and, if the owner or beneficiary is payment is not a withholdable payment.
Form W­8BEN­E for more information on pay­ foreign, whether a reduced rate of chapter 3
ments to disregarded entities. withholding applies. For purposes of chapter 4, Example 2. A nonwithholding foreign part­
you must determine the chapter 4 status of the nership has two partners: a foreign corporation
owners or beneficiaries of a flow­through entity and a nonwithholding foreign partnership. The
Flow­Through Entities (subject to the exceptions described above), second partnership has two partners, both non­
how much of the payment relates to each owner resident alien individuals. You make a payment
Chapter 3 payees. The payees of payments or beneficiary, and whether withholding under of U.S. source interest to the first partnership.
(other than income effectively connected with a chapter 4 applies. You make these determina­ Assume that the payment is subject to chap­
U.S. trade or business) made to a foreign tions based on the documentation and other in­ ter 3 withholding but is not a withholdable pay­
flow­through entity are the owners or beneficia­ formation (contained in a withholding state­ ment. The partnership gives you a valid Form
ries of the flow­through entity. This rule applies ment) that is associated with the flow­through W­8IMY with which it associates a Form
for purposes of chapter 3 withholding and for entity's Form W­8IMY. If you do not have all of W­8BEN­E from the foreign corporation and a
Form 1099 reporting and backup withholding. the information that is required to reliably asso­ Form W­8IMY from the second partnership. In
Income that is, or is deemed to be, effectively ciate a payment with a specific payee, you must addition, Forms W­8BEN from the partners are
connected with the conduct of a U.S. trade or apply the presumption rules. See Documenta­ associated with the Form W­8IMY from the sec­
business of a flow­through entity is treated as tion and Presumption Rules, later. ond partnership. The Forms W­8IMY from the
paid to the entity. partnerships have complete withholding state­
Withholding foreign partnerships and with­ ments associated with them. Because you can
All of the following are flow­through entities.
holding foreign trusts are not flow­through enti­ reliably associate a part of the interest payment
A foreign partnership (other than a with­
ties. with the Form W­8BEN­E provided by the for­
holding foreign partnership).
eign corporation and the Forms W­8BEN provi­
A foreign simple or foreign grantor trust
Foreign partnerships. A foreign partnership ded by the nonresident alien individual partners
(other than a withholding foreign trust).
is any partnership that is not organized under as a result of the withholding statements, you
If the chapter 3 payee is a disregarded en­
the laws of any state of the United States or the must treat them as the payees of the interest.
tity or flow­through entity for U.S. tax pur­
District of Columbia or any partnership that is You do not need to determine the chapter 4 sta­
poses, but the payee is claiming treaty
treated as foreign under the income tax regula­ tus of the partnership because the payment is
benefits, see Fiscally transparent entity,
tions. If a foreign partnership is not a withhold­ not a withholdable payment.
later.
ing foreign partnership, the payees of income
are the partners of the partnership, provided the
partners are not themselves flow­through enti­

Publication 515 (2017) Page 5

 Example 3. You make a payment of U.S. the law of the treaty country whose treaty it is in­ chapter 4 status of A does not need to be deter­
source dividends to a withholding foreign part­ voking. It must also meet any other require­ mined because the payment is not a withholda­
nership. Assume that the payment is subject to ments for claiming benefits, including a limita­ ble payment.
chapter 3 withholding and is a withholdable tion on benefits article, if any, in the treaty. The For U.S. income tax purposes, A is treated
payment. The partnership has two partners, entity should provide a Form W­8BEN­E in such as a partnership. Country X treats A as a part­
both foreign corporations. You can reliably as­ circumstances. If, for chapter 3 purposes, the nership and requires the interest holders in A to
sociate the payment with a valid Form W­8IMY payee is a foreign corporation or other non­flow separately take into account on a current basis
from the partnership on which it represents that through entity for U.S. tax purposes, it is none­ their respective shares of the income paid to A
it is a withholding foreign partnership. You must theless not entitled to claim treaty benefits if the even if the income is not distributed. The laws
treat the partnership as the payee of the divi­ entity is fiscally transparent in its country of resi­ of country X provide that the character and
dends for purposes of both chapter 3 and chap­ dence (i.e., foreign reverse hybrid). Instead, if source of the income to A's interest holders are
ter 4, and you must determine the chapter 4 sta­ an interest holder is entitled to treaty benefits determined as if the income were realized di­
tus of the partnership. under its country of residence, the payee may rectly from the source that paid it to A. Accord­
provide a Form W­8IMY and attach Form ingly, A is fiscally transparent in its jurisdiction,
Foreign simple and grantor trust. A trust is W­8BEN or W­8BEN­E from any interest holder country X.
foreign unless it meets both of the following that claims treaty benefits on such income. B and C are not fiscally transparent under
tests. The determination of whether an entity is fis­ the laws of their respective countries of incorpo­
A court within the United States is able to cally transparent is made on an item of income ration. Country Y requires B to separately take
exercise primary supervision over the ad­ basis (that is, the determination is made sepa­ into account on a current basis B's share of the
ministration of the trust. rately for interest, dividends, royalties, etc.). income paid to A, and the character and source
One or more U.S. persons have the au­ The interest holder in an entity makes the deter­ of the income to B is determined as if the in­
thority to control all substantial decisions of mination by applying the laws of the jurisdiction come were realized directly from the source
the trust. where the interest holder is organized, incorpo­ that paid it to A. Accordingly, A is fiscally trans­
In most cases, a foreign simple trust is a for­ rated, or otherwise considered a resident. An parent for that income under the laws of country
eign trust that is required to distribute all of its entity is considered to be fiscally transparent Y, and B is treated as deriving its share of the
income annually. A foreign grantor trust is a for­ with respect to the income to the extent the U.S. source royalty income for purposes of the
eign trust that is treated as a grantor trust under laws of that jurisdiction require the interest U.S.­Y income tax treaty. Country Z, on the
sections 671 through 679 of the Code. holder to separately take into account on a cur­ other hand, treats A as a corporation and does
rent basis the interest holder's share of the in­ not require C to take into account its share of
The payees of a payment made to a foreign
come, whether or not distributed to the interest A's income on a current basis whether or not
simple trust are the beneficiaries of the trust.
holder, and the character and source of the in­ distributed. Therefore, A is not treated as fis­
The payees of a payment made to a foreign
come to the interest holder are determined as if cally transparent under the laws of country Z.
grantor trust are the owners of the trust. How­
the income was realized directly from the Accordingly, C is not treated as deriving its
ever, the payee is the foreign simple or grantor
source that paid it to the entity. Subject to the share of the U.S. source royalty income for pur­
trust itself if the trust is claiming treaty benefits
standards of knowledge rules discussed later, poses of the U.S.­Z income tax treaty.
on the basis that it is not fiscally transparent and
that it meets all the other requirements for you generally make the determination that an
claiming treaty benefits. If the beneficiaries or entity is fiscally transparent based on a Form Foreign Intermediaries
owners are themselves flow­through entities or W­8IMY provided by the entity.
foreign intermediaries, you apply the payee de­ The payees of a payment made to a fiscally In most cases, if you make payments to a for­
termination rules to that beneficiary or owner to transparent entity are the interest holders of the eign intermediary, the payees are the persons
determine the payees. entity. for whom the foreign intermediary collects the
For chapter 4 purposes, if you are making a payment, such as account holders or custom­
Example. A foreign simple trust has three withholdable payment to a fiscally transparent ers, not the intermediary itself. This rule applies
beneficiaries: two nonresident alien individuals entity, you must apply the rules of chapter 4 to for purposes of chapter 3 withholding and for
and a U.S. citizen. You make a payment of U.S. determine the payee (applying the rules descri­ Form 1099 reporting and backup withholding
source interest to the foreign trust. Assume that bed earlier) and whether chapter 4 withholding and chapter 4 withholding, provided the inter­
the payment is subject to chapter 3 withholding applies to the payment based on the payee’s mediary is not a nonparticipating FFI to which
but is not a withholdable payment. The foreign chapter 4 status. Thus, chapter 4 withholding you make a withholdable payment to which
trust gives you a Form W­8IMY with which it as­ may apply to a withholdable payment made to a chapter 4 withholding applies. You may, how­
sociates Forms W­8BEN from the nonresident fiscally transparent entity based on the chap­ ever, treat a qualified intermediary that has as­
aliens and a Form W­9 from the U.S. citizen. ter 4 status of the entity even when the interest sumed primary withholding responsibility for a
The trust also gives you a complete withholding holders in the entity would be eligible for re­ payment as the payee, and you are not required
statement that enables you to associate the in­ duced withholding under an income tax treaty to withhold.
terest payment with the forms provided by each with respect to the payment. Treaty benefits
beneficiary. You must treat all three beneficia­ may be granted to the interest holder when the An intermediary is a custodian, broker, nom­
ries as the payees of their part of the interest payment made is not subject to chapter 4 with­ inee, or any other person that acts as an agent
payment as if the payment were made directly holding based on the chapter 4 status of both for another person. A foreign intermediary is ei­
to them. Report the payment to the nonresident the entity and the interest holder. ther a qualified intermediary or a nonqualified
aliens on Forms 1042­S. Report the payment to intermediary. In most cases, you determine
the U.S. citizen on Form 1099­INT. You do not Example. Entity A is a business organiza­ whether an entity is a qualified intermediary or a
need to establish the chapter 4 status of the tion organized under the laws of country X that nonqualified intermediary based on the repre­
trust because the payment is not a withholdable has an income tax treaty in force with the United sentations the intermediary makes on Form
payment. States. A has two interest holders, B and C. B is W­8IMY.
a corporation organized under the laws of coun­
Fiscally transparent entity. For chapter 3 try Y. C is a corporation organized under the
For purposes of chapter 3, you must deter­
purposes, a disregarded entity or flow­through laws of country Z. Both countries Y and Z have
mine whether the customers or account holders
entity should be treated as the payee and may an income tax treaty in force with the United
of a foreign intermediary are U.S. or foreign per­
claim treaty benefits under an income tax treaty States.
sons and, if the account holder or customer is
with the United States if it is a resident of the A receives royalty income from U.S. sources
foreign, whether a reduced rate of, or exemp­
treaty country and it derives the item of income. that is not effectively connected with the con­
tion from, chapter 3 withholding applies. For
It does not need to be taxed on such item, but duct of a trade or business in the United States
purposes of chapter 4, you must generally de­
the item must be accounted for as the entity's and that is not a withholdable payment. The
termine the chapter 4 status of the account
income, not the interest holders' income, under holders of a foreign intermediary if the payment

Page 6 Publication 515 (2017)

is a withholdable payment. The determination also act as QIs even when they are not interme­ Qualified­Intermediaries­(QI). A QI (other than
for chapter 3 purposes is not required when diaries. You may treat a QI as a payee to the an NFFE not acting on behalf of shareholders
withholding applies under chapter 4 (i.e., when extent it assumes primary chapters 3 and 4 and certain central banks) must also register
the chapter 4 status of the foreign intermediary withholding responsibility or primary Form 1099 through the FATCA registration website availa­
is a nonparticipating FFI (including a limited reporting and backup withholding responsibility ble at www.irs.gov/FATCA to obtain its applica­
branch of a participating FFI (including a report­ for a payment. In this situation, the QI is re­ ble chapter 4 status and GIIN.
ing Model 2 FFI)) or a limited FFI (as defined in quired to withhold the tax. You can determine
Treasury regulations section 1.1471­1(b)(77)) whether a QI has assumed responsibility from Documentation requirements. For docu­
or an entity or branch treated as a nonpartici­ the Form W­8IMY provided by the QI. mentation requirements applicable to payments
pating FFI under an applicable IGA). You make made to QIs, see Responsibilities and Docu­
A payment to a QI to the extent it does not
these determinations based on the foreign inter­ mentation, discussed later under Qualified In­
assume primary chapters 3 and 4 withholding
mediary's Form W­8IMY and associated infor­ termediaries.
responsibility is considered made to the person
mation and documentation. If you do not have on whose behalf the QI acts. If a QI does not Reporting requirements. For the report­
all of the information or documentation that is assume Form 1099 reporting and backup with­ ing requirements of QIs, see Form 1042­S re­
required to reliably associate a payment with a holding responsibility, you must report on Form porting and Collective refund procedures dis­
payee, you must apply the presumption rules of 1099 and, if applicable, backup withhold as if cussed later under Qualified Intermediaries.
chapter 3, and must apply the presumption you were making the payment directly to the
rules of chapter 4 to the foreign intermediary if U.S. person. See Qualified Intermediaries, later, U.S. branches of foreign banks and foreign
the chapter 4 status of the entity (when re­ for a discussion of withholding rate pools and insurance companies. Special rules apply to
quired) cannot be determined. See Documenta­ when a QI may include a U.S. non­exempt re­ a U.S. branch of a foreign bank subject to Fed­
tion and Presumption Rules, later. cipient in a U.S. payee pool. eral Reserve Board supervision or a foreign in­
surance company subject to state regulatory
Special rule for chapter 4. For purposes of Qualified derivatives dealers. For the
supervision. Effective July 1, 2014, you must
chapter 4, a foreign person acting as an inter­ definition of qualified derivatives dealer (QDD),
obtain a branch’s chapter 4 status, if required
mediary is generally not the payee if the foreign see the regulations and other guidance issued
for chapter 4 purposes. You can generally treat
person is: under section 871(m) and the related chapter 3
the branch as a U.S. person for a withholdable
An NFFE, unless the NFFE is a qualified regulations.
payment only when you document its status as
intermediary that has assumed primary a participating FFI, registered deemed­compli­
Branches of financial institutions.
chapters 3 and 4 withholding responsibil­ ant FFI, or an insurance company that is an
Branches of financial institutions are not permit­
ity; or NFFE. If you make a payment of an amount
ted to operate as QIs if they are located outside
A participating FFI, deemed­compliant FFI, of countries having approved “know­your­cus­ subject to chapter 3 withholding or a withholda­
or restricted distributor, unless such entity tomer” (KYC) rules. The countries with ap­ ble payment to a U.S. branch of a foreign bank
is a QI that has assumed primary chapters proved KYC rules are listed at www.irs.gov/ or insurance company that is a participating
3 and 4 withholding responsibility. Businesses/International­Businesses/List­of­ FFI, a registered deemed­compliant FFI, or an
If you make a withholdable payment to one of Approved­KYC­Rules. NFFE that agrees to be treated as a U.S. per­
the types of entities described above, the payee son, you may treat the U.S. branch as a payee
is the person for whom the agent or intermedi­ QI agreement. Foreign financial institu­ that is a U.S. person, provided you receive a
ary collects the payment. tions, foreign clearing organizations, and for­ Form W­8IMY from the U.S. branch that you
eign branches of U.S. financial institutions or can reliably associate with the payment. If you
Nonqualified intermediary. A nonqualified in­ clearing organizations can enter into an agree­ treat the branch as a U.S. person, you are not
termediary (NQI) is any intermediary that is a ment with the IRS to become a QI. For informa­ required to withhold on an amount subject to
foreign person and that is not a qualified inter­ tion on becoming a QDD, see the regulations chapter 3 withholding or a withholdable pay­
mediary. The payees of a payment made to an and other guidance issued under section ment. Even though you agree to treat the
NQI for both chapter 3 and chapter 4 purposes 871(m) and the related chapter 3 regulations. branch as a U.S. person, you must report the
are the customers or account holders on whose To enter into a QI agreement effective for the payments made to the branch on Form 1042­S.
behalf the NQI is acting. period beginning on or after June 30, 2014, a A territory financial institution is a financial
foreign financial institution must have a chap­ institution as defined for chapter 4 purposes
Example. You make a payment of interest ter 4 status as: (except when it is an investment entity that is
to a foreign bank that is a nonqualified interme­ A participating FFI (including a reporting not also a depository institution, custodial insti­
diary. Assume the payment is subject to chap­ Model 2 FFI); tution, or specified insurance company) incor­
ter 3 withholding but is not a withholdable pay­ A registered deemed­compliant FFI (in­ porated or organized under the laws of a pos­
ment. The bank gives you a Form W­8IMY and cluding a reporting Model 1 FFI and a non­ session of the United States. A territory financial
the Forms W­8BEN of two foreign persons, and reporting Model 2 FFI treated as registered institution that is an intermediary or flow­through
a Form W­9 from a U.S. person for whom the deemed­compliant); or entity is treated as a U.S. branch that agrees to
bank is collecting the payments. The bank also An FFI treated as a deemed­compliant FFI be treated as a U.S. person. The special rules
associates with its Form W­8IMY a withholding under an applicable Model 1 IGA that is described in this section apply to a territory fi­
statement on which it allocates the interest pay­ subject to similar due diligence and report­ nancial institution.
ment and provides all other information required ing requirements with respect to U.S. ac­ If you are paying a U.S. branch an amount
to be on the withholding statement. The ac­ counts as those applicable to a registered that is not subject to chapter 3 withholding and
count holders are the payees of the interest deemed­compliant FFI (a “registered is not a withholdable payment, treat the pay­
payment. You should report the part of the inter­ deemed­compliant Model 1 IGA FFI”). ment as made to a foreign person, irrespective
est paid to the two foreign persons on Forms Certain foreign corporations that are NFFEs or of any agreement to treat the branch as a U.S.
1042­S and the part paid to the U.S. person on foreign central banks of issue may also apply to person for such amounts. Consequently,
Form 1099­INT. You do not need to establish the IRS to become QIs. amounts not subject to chapter 3 withholding
the chapter 4 status of the NQI because the An entity may apply for QI status by com­ and that are not withholdable payments that are
payment is not a withholdable payment. pleting Form 14345, Qualified Intermediary Ap­ paid to a U.S. branch are not subject to Form
plication, and Form SS­4, Application for Em­ 1099 reporting or backup withholding.
Qualified intermediary. A qualified intermedi­ ployer Identification Number, and submitting Alternatively, a U.S. branch may provide you
ary (QI) is generally a foreign intermediary de­ these forms to the IRS along with any additional with a Form W­8IMY with which it associates
scribed later under QI agreement (or foreign information and documentation requested by the documentation of the persons on whose be­
branch of a U.S. intermediary) that has entered the IRS. These forms, and the procedures re­ half it acts. In this situation, the U.S. branch is
into a qualified intermediary agreement (dis­ quired to obtain a QI agreement are available at not treated as a U.S. person, and the payees
cussed later) with the IRS. Certain entities may www.irs.gov/Businesses/Corporations/ are the persons on whose behalf the branch

Publication 515 (2017) Page 7

acts provided you can reliably associate the when acting in that capacity. A WP or WT that is apply to nonresident aliens for all income ex­
payment with valid documentation from those an FFI (other than a retirement fund) must also cept wages. Wages paid to these individuals
persons. See Nonqualified Intermediaries under register with the IRS through the FATCA regis­ are subject to graduated withholding. See Wa­
Documentation, later. tration website available at www.irs.gov/FATCA ges Paid to Employees—Graduated Withhold­
If you cannot reliably associate the payment to obtain its applicable chapter 4 status and ing.
with a Form W­8IMY from the U.S. branch but GIIN.
you have obtained an EIN for the branch, you Resident alien. A resident alien is an individ­
Documentation. A WP or WT must pro­ ual who is not a citizen or national of the United
should treat the payment as a payment to a for­
vide you with a Form W­8IMY that certifies that States and who meets either the green card test
eign person of income that is effectively con­
the WP or WT is acting in that capacity and pro­ or the substantial presence test for the calendar
nected with the conduct of a trade or business
vides all other information and certifications re­ year.
in the United States. If you cannot reliably asso­
quired by the form, including its WP­EIN or Green card test. An alien is a resident
ciate the payment with a Form W­8IMY from the
WT­EIN. When you make a withholdable pay­ alien if the individual was a lawful perma­
U.S. branch and you have not obtained an EIN
ment to a WP or WT, the WP or WT generally nent resident of the United States at any
for the branch, you should treat the payment as
may also provide a certificate of a chapter 4 sta­ time during the calendar year. This is
a payment to a foreign person of income that is
tus permitted of a WP or WT (and GIIN if appli­ known as the green card test because
not effectively connected with the conduct of a
cable). The WP or WT, when acting in such ca­ these aliens hold immigrant visas (also
trade or business in the United States.
pacity, is not required to provide a withholding known as green cards).
Withholding foreign partnership and with­ statement and is not required to disclose any in­ Substantial presence test. An alien is
holding foreign trust. A withholding foreign formation regarding its direct partners, benefi­ considered a resident alien if the individual
partnership (WP) is any foreign partnership that ciaries, or owners or any indirect partner, bene­ meets the substantial presence test for the
has entered into a WP agreement with the IRS ficiary, or owner for which it acts as a WP or WT calendar year. Under this test, the individ­
and is acting in that capacity with respect to its that is not a U.S. non­exempt recipient (except ual must be physically present in the Uni­
partners. A withholding foreign trust (WT) is a for a U.S. non­exempt recipient included in a ted States on at least:
foreign simple or grantor trust that has entered chapter 4 withholding rate pool of U.S. pay­
ees.). A chapter 4 withholding rate pool also 1. 31 days during the current calendar year,
into a WT agreement with the IRS and is acting and
in that capacity with respect to its owners and means a payment of a single type of income
beneficiaries. In order to enter into a WP agree­ that is allocated to U.S. payees when the WP 2. 183 days during the current year and the 2
ment or WT agreement effective on or after provides the certification required on Form preceding years, counting all the days of
June 30, 2014, with the IRS, a WP or WT that is W­8IMY for allocating payments to this pool. physical presence in the current year, but
an FFI must have a chapter 4 status as: When a WP or WT is not acting as a WP or WT only 1 3 the number of days of presence in
with respect to an amount distributed to, or in­ the first preceding year, and only 1 6 the
A participating FFI (including a reporting
cluded in the distributive share of, an indirect number of days in the second preceding
Model 2 FFI);
partner, beneficiary, or owner, it must provide year.
A registered­deemed compliant FFI (in­
you with a nonwithholding foreign partnership or
cluding a reporting Model 1 FFI and a non­
nonwithholding foreign trust withholding certifi­ In most cases, the days the alien is in the
reporting Model 2 FFI treated as registered
cate on a Form W­8IMY and documentation for United States as a teacher, student, or trainee
deemed­compliant);
its indirect partners, beneficiaries, and owners on an “F,” “J,” “M,” or “Q” visa are not counted.
A registered deemed­compliant Model 1
that are not included in a chapter 4 withholding This exception is for a limited period of time.
IGA FFI; or
rate pool. For more information on resident and non­
A retirement fund.
resident status, the tests for residence, and the
A WP or WT that is an NFFE may also enter
into a WP or WT agreement with the IRS. Foreign Persons exceptions to them, see Publication 519.

A WP or WT must act in that capacity for re­ Note. If your employee is late in notifying
Rules relevant to chapters 3 and 4. A payee you that his or her status changed from nonresi­
portable amounts that are distributed to, or in­
is subject to withholding only if it is a foreign dent alien to resident alien, you may have to
cluded in the distributive share of, its direct part­
person. A foreign person includes a nonresi­ make an adjustment to Form 941 if that em­
ners, beneficiaries, or owners. A WP or WT
dent alien individual, foreign corporation, for­ ployee was exempt from withholding of social
may act in that capacity for reportable amounts
eign partnership, foreign trust, foreign estate, security and Medicare taxes as a nonresident
that are distributed to, or included in the distrib­
and any other person that is not a U.S. person. alien. For more information on making adjust­
utive share of, its indirect partners, beneficia­
It also includes a foreign branch of a U.S. finan­ ments, see chapter 13 of Publication 15 (Circu­
ries, or owners that are not U.S. non­exempt re­
cial institution if the foreign branch is a qualified lar E).
cipients (except for a U.S. non­exempt recipient
intermediary. In most cases, the U.S. branch of
that is included in a chapter 4 withholding rate Resident of a U.S. possession. A bona
a foreign corporation or partnership is treated
pool of U.S. payees). A WP or WT acting in that fide resident of Puerto Rico, the U.S. Virgin Is­
as a foreign person.
capacity must assume primary chapters 3 and 4 lands, Guam, the Commonwealth of the North­
withholding responsibility for payments subject If an amount is both a withholdable payment
and an amount subject to chapter 3 withholding ern Mariana Islands (CNMI), or American Sa­
to withholding and must assume certain report­ moa who is not a U.S. citizen or a U.S. national
ing requirements with respect to its U.S. part­ and the withholding agent withholds under
chapter 4, it may credit this amount against any is treated as a nonresident alien for the with­
ners, beneficiaries, and owners. You may treat holding rules explained here. A bona fide resi­
a WP or WT as a payee if it has provided you tax due under chapter 3.
dent of a possession is someone who:
with documentation (discussed later) that repre­ Meets the presence test,
Nonresident alien. A nonresident alien is an
sents that it is acting as a WP or WT for such Does not have a tax home outside the pos­
individual who is not a U.S. citizen or a resident
amounts. session, and
alien. A resident of a foreign country under the
WP agreement and WT agreement. The residence article of an income tax treaty is a Does not have a closer connection to the
WP agreement and WT agreement and the ap­ nonresident alien individual for purposes of United States or to a foreign country than
plication procedures for the agreements are in withholding. to the possession.
Revenue Procedure 2014­47 (as may be amen­ For more information, see Publication 570,
Married to U.S. citizen or resident alien.
ded). An entity applies for WP or WT status by Tax Guide for Individuals With Income From
Nonresident alien individuals married to U.S.
completing Form 14345 and Form SS­4 and U.S. Possessions.
citizens or resident aliens may choose to be
submitting these forms to the IRS, along with
treated as resident aliens for certain income tax
any additional information and documentation Foreign corporations. A foreign corporation
purposes. However, these individuals are still
requested by the IRS. The WP or WT will be as­ is one that does not fit the definition of a domes­
subject to the chapter 3 withholding rules that
signed a WP­EIN or WT­EIN to be used only tic corporation. A domestic corporation is one

Page 8 Publication 515 (2017)

that was created or organized in the United payment is subject to chapter 3 withholding,
States or under the laws of the United States,
any of its states, or the District of Columbia.
even though no tax is withheld.
You must withhold tax on the unrelated busi­ Documentation
ness income (as described in Publication 598,
Guam or Northern Mariana Islands cor­
Tax on Unrelated Business Income of Exempt
porations. A corporation created or organized
in, or under the laws of, Guam or the CNMI is
Organizations) of foreign tax­exempt organiza­ Documentation for Chapter 3
tions in the same way that you would withhold
not considered a foreign corporation for the pur­
tax on similar income of nonexempt organiza­ For purposes of chapter 3, in most cases, you
pose of withholding tax for the tax year if:
tions when the organization does not provide must withhold 30% from the gross amount paid
At all times during the tax year less than
you a Form W­8ECI to certify that the income is to a foreign payee unless you can reliably asso­
25% in value of the corporation's stock is
effectively connected with a U.S. trade or busi­ ciate the payment with valid documentation that
owned, directly or indirectly, by foreign per­
ness of the organization. establishes either of the following.
sons; and
At least 20% of the corporation's gross in­ The payee is a U.S. person.
U.S. branches of foreign persons. In most The payee is a foreign person that is the
come is derived from sources within Guam cases, a payment to a U.S. branch of a foreign
or the CNMI for the 3­year period ending beneficial owner of the income and is enti­
person is a payment made to the foreign per­ tled to a reduced rate of withholding under
with the close of the preceding tax year of son. However, you may treat payments to U.S.
the corporation (or the period the corpora­ the Code or an applicable income tax
branches of certain foreign banks and foreign treaty.
tion has been in existence, if less). insurance companies (discussed earlier) that
Note. The provisions discussed below un­ are subject to U.S. regulatory supervision as If withholding is applied under chapter 4 on
der U.S. Virgin Islands and American Samoa payments made to a U.S. person, if you and the a payment, no withholding will be required on
corporations will apply to Guam or CNMI corpo­ U.S. branch have agreed to do so, and if their such payment under chapter 3.
rations when an implementing agreement is in agreement is evidenced by a withholding certifi­
effect between the United States and that pos­ cate, Form W­8IMY. For this purpose, a territory
financial institution acting as an intermediary or
Documentation for Chapter 4
session.
that is a flow­through entity is treated as a U.S. If you make a withholdable payment, you must
U.S. Virgin Islands and American Samoa branch. determine the chapter 4 status of payees, bene­
corporations. A corporation created or organ­
ficial owners, and intermediaries and
ized in, or under the laws of, the U.S. Virgin Is­
lands or American Samoa is not considered a
Additional Rules flow­through entities receiving the payment to
foreign corporation for the purposes of with­
Specific to Chapter 4 the extent required for chapter 4 purposes. You
must also determine the chapter 4 status of per­
holding tax for the tax year if:
A payee may be subject to chapter 4 withhold­ sons that own an interest in an entity receiving a
At all times during the tax year less than
ing only if it is a foreign entity. A foreign entity withholdable payment that you treat as an
25% in value of the corporation's stock is
for chapter 4 purposes means any entity that is owner­documented FFI, provided you are either
owned, directly or indirectly, by foreign per­
not a U.S. person and includes a territory entity a U.S. financial institution, participating FFI, or
sons,
as defined in Treasury regulations section reporting Model 1 FFI. To establish a chapter 4
At least 65% of the corporation's gross in­
1.1471­1(b)(129). status, you generally must obtain a valid with­
come is effectively connected with the con­
holding certificate or documentary evidence
duct of a trade or business in the U.S. Vir­ A foreign entity is subject to chapter 4 with­ that you can reliably associate with the pay­
gin Islands, American Samoa, Guam, the holding if it is a nonparticipating FFI or a pas­ ment. If you make a payment to a passive
CNMI, or the United States for the 3­year sive NFFE that does not provide the appropri­ NFFE, you must obtain either a certification that
period ending with the close of the tax year ate certification regarding its substantial U.S. the NFFE does not have any substantial U.S.
of the corporation (or the period the corpo­ owners. A nonparticipating FFI is an FFI other owners, or the name, address, and TIN of each
ration or any predecessor has been in ex­ than a participating FFI, deemed­compliant FFI, substantial U.S. owner of the NFFE (or, under
istence, if less), and or exempt beneficial owner. See Definitions, an applicable IGA, each controlling person that
No substantial part of the income of the later, for the definitions of these terms. A pas­ is a specified U.S. person).
corporation is used, directly or indirectly, to sive NFFE is an NFFE other than a publicly tra­
satisfy obligations to a person who is not a You can reliably associate a payment with a
ded corporation, certain affiliated entities rela­
bona fide resident of the U.S. Virgin Is­ Form W­8 for purposes of establishing a
ted to a publicly traded corporation, certain
lands, American Samoa, Guam, the CNMI, payee’s chapter 4 status in most cases if, prior
territory entities, active NFFEs, and excluded
or the United States. to the payment, you obtain a valid form that
FFIs.
contains the information required for chapter 4
Foreign private foundations. A private foun­ purposes, you can reliably determine how much
For chapter 4 purposes, a U.S. person does
dation that was created or organized under the of the payment relates to the form, and you
not include a foreign insurance company that
laws of a foreign country is a foreign private have no actual knowledge or reason to know
has made an election under section 953(d) if it
foundation. Gross investment income from that any of the information, certifications, or
is a specified insurance company and is not li­
sources within the United States paid to a quali­ statements in, or associated with, the form is
censed to do business in any state. Notwith­
fied foreign private foundation is subject to with­ unreliable or incorrect for chapter 4 purposes.
standing the foregoing, a withholding agent
holding at a 4% rate (unless exempted by a See Standards of Knowledge for Chapter 4,
should treat such entity as a U.S. person for
treaty) rather than the ordinary statutory 30% later, for the reason to know standards that ap­
purposes of documenting the entity’s status for
rate. ply for chapter 4 purposes. For the require­
purposes of chapters 3 and 4.
ments for documenting specific chapter 4 sta­
Other foreign organizations, associations, tuses of persons receiving withholdable
and charitable institutions. An organization payments, see Treasury regulations section
may be exempt from income tax under section 1.1471­3(d). See also Treasury regulations sec­
501(a) of the Internal Revenue Code and chap­ tion 1.1471­3(d) for the extent to which a with­
ter 4 withholding tax even if it was formed under holding agent may rely on documentary evi­
foreign law. In most cases, you do not have to dence (other than a Form W­8) to establish the
withhold tax on payments of income to these chapter 4 status of an entity payee, including
foreign tax­exempt organizations unless the the forms of documentary evidence permitted
IRS has determined that they are foreign private for each specific chapter 4 status. For the re­
foundations. quirements for documentary evidence, see
Payments to these organizations, however, Treasury regulations section 1.1471­3(c)(5). If
must be reported on Form 1042­S if the you make a withholdable payment to an entity

Publication 515 (2017) Page 9

payee and cannot reliably associate the pay­ Form W­9. The Form W­9 can be used only by under chapter 4 may apply based on the chap­
ment with a valid withholding certificate or valid a U.S. person and must contain the payee's tax­ ter 4 status of the payee regardless of whether
documentary evidence, you must apply the payer identification number (TIN). If there is a claim of treaty benefits may apply to such
chapter 4 presumption rules described in Pre­ more than one owner, you may treat the total payee or other person receiving the income.
sumption Rules for Chapter 4, later. amount as paid to a U.S. person if any one of If the foreign beneficial owner claiming a
the owners gives you a Form W­9. See U.S. treaty benefit is related to you, the foreign bene­
You may rely on the same documentation
Taxpayer Identification Numbers, later. U.S. ficial owner also must certify on a Form W­8
for purposes of both chapters 3 and 4 provided
persons are not subject to chapter 3 withhold­ that it will file Form 8833, Treaty­Based Return
the documentation is sufficient to meet the re­
ing, but may be subject to: Position Disclosure Under Section 6114 or
quirements of each chapter. For example, you
Form 1099 reporting and backup withhold­ 7701(b), if the amount subject to chapter 3 with­
may use a W­8BEN­E to obtain both the chap­
ing under section 3406; holding received during a calendar year ex­
ter 3 and chapter 4 statuses of an entity provid­
Reporting as a U.S. account holder of a ceeds, in the aggregate, $500,000.
ing the form.
participating FFI or registered An entity derives income for which it is
deemed­compliant FFI; and claiming treaty benefits only if the entity is not
Additional Documentation Classification as a recalcitrant account treated as fiscally transparent for that income.
Rules Applicable to holder of a participating FFI or registered See Fiscally transparent entity discussed earlier
Chapters 3 and 4 deemed­compliant FFI for chapter 4 purpo­
ses (including chapter 4 withholding) when
under Flow­Through Entities.
Limitations on benefits provisions in income
In most cases, you must reliably associate the the FFI is unable to report the information tax treaties generally prohibit third country resi­
payment with valid documentation to apply re­ required with respect to the account dents from obtaining treaty benefits. For exam­
duced withholding and must get the documen­ holder. ple, a foreign corporation may not be entitled to
tation before you make the payment. The docu­ a reduced rate of withholding unless a minimum
Forms W­8. In most cases, a foreign payee of percentage of its owners are citizens or resi­
mentation is not valid if you know, or have
the income should give you a form in the Form dents of the United States or the treaty country.
reason to know, that it is unreliable or incorrect.
W­8 series.
See Standards of Knowledge, later. The exemptions from, or reduced rates of,
If certain requirements are met, the foreign U.S. tax vary under each treaty. You must
If you cannot reliably associate a payment person can give you documentary evidence, check the provisions of the tax treaty that apply.
with valid documentation, you must use the pre­ rather than a Form W­8. You can rely on docu­ See Tax Treaties, later, for information on how
sumption rules discussed later to determine the mentary evidence in lieu of a Form W­8 for an
rate of withholding. For example, if you do not to access tax treaties.
amount paid outside the United States with re­
have documentation or you cannot determine If you know, or have reason to know, that an
spect to an offshore obligation. Refer to Off­
the part of a payment that is allocable to spe­ owner of income is not eligible for treaty bene­
shore obligations, later, to determine whether a
cific documentation, you must use the pre­ fits claimed, you must not apply the treaty rate.
payment qualifies as such a payment.
sumption rules of section 1441. You are not, however, responsible for misstate­
ments on a Form W­8, documentary evidence,
The specific types of documentation are dis­ Other documentation. Other documentation
or statements accompanying documentary evi­
cussed in this section. However, see Withhold­ may be required to claim an exemption from, or
dence for which you did not have actual knowl­
ing on Specific Income, later, as well as the in­ a reduced rate of, chapter 3 withholding on pay
edge, or reason to know, that the statements
structions to the particular forms. As the for personal services. The nonresident alien in­
were incorrect. Certain withholding agents,
withholding agent, you also may want to see the dividual may have to give you a Form W­4 or a
such as financial institutions, have limited rea­
Instructions for the Requester of Forms Form 8233, Exemption From Withholding on
son to know requirements for this purpose. See
W­8BEN, W­8BEN­E, W­8ECI, W­8EXP, and Compensation for Independent (and Certain
Treasury regulations section 1.1441­7(b) for
W­8IMY. Dependent) Personal Services of a Nonresident
these requirements.
Alien Individual. These forms are discussed in
Section 1446 withholding. Under section Pay for Personal Services Performed under Exceptions to TIN requirement. A for­
1446 of the Code, a partnership must withhold Withholding on Specific Income. eign person does not have to provide a U.S. or
tax on its effectively connected income alloca­ foreign TIN to claim a reduced rate of withhold­
ble to a foreign partner. In most cases, a part­ Beneficial Owners ing under a treaty if the requirements for the fol­
nership determines if a partner is a foreign part­ lowing exceptions are met.
ner and the partner's tax classification based on Income from marketable securities (dis­
If all the appropriate requirements have been
the withholding certificate provided by the part­ cussed next).
established on a Form W­8BEN, W­8BEN­E, Unexpected payments to an individual
ner. This is the same documentation that is filed
W­8ECI, W­8EXP or, if applicable, on docu­ (discussed under U.S. Taxpayer Identifica­
for chapter 3 withholding, but may require addi­
mentary evidence, you can treat the payee as a tion Numbers).
tional information as discussed under each of
foreign beneficial owner.
the forms in this section. The allowance to provide a foreign TIN (rather
Claiming treaty benefits for purposes of than a U.S. TIN) does not apply to a payment to
Documentation rule for joint payees. If you compensate an individual for personal services.
chapter 3. You may apply a reduced rate of
make a payment to joint payees (such as hold­
chapter 3 withholding to a foreign person that
ers of a joint account), you need to get docu­ Marketable securities. A Form W­8 provi­
provides a Form W­8 claiming a reduced rate of
mentation from each payee. If you make a pay­ ded to claim treaty benefits does not need a
withholding under an income tax treaty only if
ment to joint payees and cannot reliably U.S. or foreign TIN if the foreign beneficial
the person provides a U.S. or foreign TIN and
associate the payment with documentation from owner is claiming the benefits on income from
certifies that:
all of the payees, you generally must presume marketable securities. For this purpose, income
It is a resident of a treaty country;
the payment is made to an unidentified U.S. from a marketable security consists of the fol­
It is the beneficial owner of the income;
person. If the payment is a withholdable pay­ lowing items.
If it is an entity, it derives the income within
ment and any of the payees does not appear, Dividends and interest from stocks and
the meaning of section 894 of the Internal
by name or other information in the account file, debt obligations that are actively traded.
Revenue Code (it is not fiscally transpar­
to be an individual, you must treat the entire Dividends from any redeemable security
ent); and
amount as a payment made to an undocumen­ issued by an investment company regis­
It meets any limitation on benefits provision
ted foreign person. However, if one of the joint tered under the Investment Company Act
contained in the treaty, if applicable, and
payees has provided you with a Form W­9, you of 1940 (mutual fund).
specifies the category of the limitation on
must treat the payment as made to that payee. Dividends, interest, or royalties from units
benefits provision.
of beneficial interest in a unit investment
Form W­9. In most cases, you can treat the If the payment you make is a withholdable trust that are (or were upon issuance)
payee as a U.S. person if the payee gives you a payment to an entity, a requirement to withhold

Page 10 Publication 515 (2017)

 publicly offered and are registered with the b. Is an official document issued by an Withholding and Reporting (Entities). This
SEC under the Securities Act of 1933. authorized governmental body, and form is used by a foreign entity to:
Income related to loans of any of the above Establish foreign status;
c. Is issued no more than 3 years prior to
securities. Establish an entity's chapter 4 status to the
being presented to you.
extent required for chapter 4 purposes;
Offshore obligations. If a payment is 3. Documentation for an entity that: Claim that such entity is the beneficial
made outside the United States with respect to owner of the income for which the form is
an offshore obligation, a payee may give you a. Includes the name of the entity,
being furnished or a partner in a partner­
documentary evidence, rather than a Form b. Includes the address of its principal ship subject to section 1446 withholding;
W­8, to establish that the payee is a foreign per­ office in the treaty country, and and
son. See Treasury regulations section If applicable, claim a reduced rate of, or
1.6049­5(c)(1) for the requirements for docu­ c. Is an official document issued by an
exemption from, chapter 3 withholding un­
mentary evidence for offshore obligations. For authorized governmental body.
der an income tax treaty.
accounts opened on or after July 1, 2014,
In addition to the documentary evidence, a for­ Form W­8BEN­E also may be used to claim
through December 31, 2014, you may use the
eign beneficial owner that is an entity must pro­ that the foreign entity is exempt from Form 1099
rules regarding the use of documentary evi­
vide a statement that it derives the income for reporting and backup withholding for income
dence under Treasury regulations sections
which it claims treaty benefits and that it meets that is not subject to chapter 3 withholding and
1.6049­5(c)(1) and (c)(4) as in effect prior to the
one or more of the conditions set forth in a limi­ is not a withholdable payment. For example, a
issuance of the temporary regulations.
tation on benefits article, if any, (or similar provi­ foreign entity may provide a Form W­8BEN­E to
A payment is made outside the United
sion) contained in the applicable treaty. In the a broker to establish that the gross proceeds
States if you complete the acts necessary to ef­
case of a withholdable payment made to an en­ from the sale of securities are not subject to
fect the payment outside the United States.
tity, you must also obtain the applicable docu­ Form 1099 reporting or backup withholding.
However, an amount paid by a bank or other fi­
mentation to establish that withholding does not An entity payee also may provide a Form
nancial institution on a deposit or account usu­
apply under chapter 4. W­8BEN­E to establish that certain income from
ally will be treated as paid at the branch or of­
fice where the amount is credited unless the notional principal contracts is not effectively
Form W­8BEN, Certificate of Foreign Status
other requirements of Treasury regulations sec­ connected with the conduct of a U.S. trade or
of Beneficial Owner for United States Tax
tion 1.6049­5(e)(2) are met with respect to the business. In addition, a foreign hybrid entity
Withholding and Reporting (Individuals).
branch or office, unless the amount is collected claiming treaty benefits on its own behalf should
This form is used by a foreign individual to: provide you with a Form W­8BEN­E with re­
by the financial institution as an agent of the
Establish foreign status; spect to the income for which treaty benefits are
payee. An offshore obligation is an account
Claim that such individual is the beneficial being claimed. In certain cases, a similar
maintained at an office or branch of a bank or
owner of the income for which the form is agreed form may be associated with the pay­
other financial institution located outside the
being furnished or a partner in a partner­ ment instead of a Form W­8BEN­E.
United States or an obligation, contract, or other
ship subject to section 1446 withholding;
instrument with respect to which the payor of
If applicable, claim a reduced rate of, or Form W­8ECI, Certificate of Foreign Per­
the payment is either engaged in business as a
exemption from, withholding under an in­ son's Claim That Income Is Effectively Con­
broker or dealer in securities or a financial insti­
come tax treaty; and nected With the Conduct of a Trade or Busi­
tution that engages in significant activities at an
Provide a foreign TIN or date of birth when ness in the United States. This form is used
office or branch located outside the United
the beneficial owner holds an account at a by a foreign person to:
States.
U.S. office of a financial institution. Establish foreign status,
You may rely on documentary evidence
given to you by a nonqualified intermediary or a Claim that such person is the beneficial
Note. Form W­8BEN is now used exclu­
flow­through entity with its Form W­8IMY. This owner of the income for which the form is
sively by individuals. Entities documenting their
rule applies even though you make the payment being furnished, and
status as a foreign person and beneficial owner
to a nonqualified intermediary or flow­through Claim that the income is effectively con­
for chapter 3 purposes, their chapter 4 status as
entity in the United States. In most cases, the nected with the conduct of a trade or busi­
a payee for chapter 4 purposes, or eligibility for
nonqualified intermediary or flow­through entity ness in the United States. (See Effectively
making a claim of treaty benefits (if applicable)
that gives you documentary evidence also will Connected Income, later.)
should use Form W­8BEN­E.
have to give you a withholding statement, dis­ Effectively connected income for which a
A withholding agent in some cases may
cussed later. valid Form W­8ECI has been provided is gener­
substitute its own form for a Form W­8BEN for
Documentary evidence. You may apply a individuals. Solely for purposes of chapter 3, a ally not subject to chapter 3 withholding or with­
reduced rate of withholding to income from mar­ Form W­8BEN with a revision date February holding under chapter 4.
ketable securities (discussed earlier) paid out­ 2006 provided to you by an entity before Janu­ If a partner submits this form to a partner­
side the United States with respect to an off­ ary 1, 2015 will remain valid until the form’s val­ ship, the income claimed to be effectively con­
shore obligation if the beneficial owner gives idity expires under the applicable chapter 3 reg­ nected with the conduct of a U.S. trade or busi­
you documentary evidence in place of a Form ulations. For purposes of chapter 4, a Form ness is subject to withholding under section
W­8. To claim treaty benefits, the documentary W­8BEN with a revision date February 2006 1446. If the partner has made, or will make, an
evidence must be one of the following: provided to you by an entity before such date is election under section 871(d) or 882(d), the
and will remain valid to the extent permitted un­ partner must submit Form W­8ECI, and attach a
1. A certificate of residence that: der chapter 4. copy of the election, or a statement of intent to
a. Is issued by a tax official of the treaty Form W­8BEN also may be used to claim elect, to the form.
country of which the foreign beneficial that the foreign individual is exempt from Form If the partner's only effectively connec­
owner claims to be a resident, 1099 reporting and backup withholding for in­ ted income is the income allocated
come that is not subject to chapter 3 withhold­ !
CAUTION from the partnership and the partner is
b. States that the person has filed its ing and is not a withholdable payment. For ex­
most recent income tax return as a not making the election under section 871(d) or
ample, a foreign person may provide a Form 882(d), the partner should provide Form
resident of that country, and W­8BEN to a broker to establish that the gross W­8BEN or W­8BEN­E to the partnership.
c. Is issued within 3 years prior to being proceeds from the sale of securities are not
presented to you. subject to Form 1099 reporting or backup with­ For purposes of chapter 3, a Form W­8ECI
holding. with a revision date February 2006 provided to
2. Documentation for an individual that: you before January 1, 2015, will remain valid
a. Includes the individual's name, ad­ Form W­8BEN­E, Certificate of Status of until the form’s validity expires under the appli­
dress, and photograph, Beneficial Owner for United States Tax cable chapter 3 regulations.

Publication 515 (2017) Page 11

Form W­8EXP, Certificate of Foreign Gov­ Establish the entity’s chapter 4 status the portion of the payment allocated to each
ernment or Other Foreign Organization for when required for chapter 4 purposes, payee and each payee’s chapter 4 status.
United States Tax Withholding and Report­ When applicable, certify that the entity is a Any withholding statement provided by an
ing. This form is used by a foreign government, participating FFI, a registered FFI other than an FFI acting as a WP, WT, or QI
international organization, foreign central bank deemed­compliant FFI, or a qualified inter­ with respect to the account must also identify
of issue, foreign tax­exempt organization, for­ mediary that may provide a withholding each intermediary or flow­through entity that re­
eign private foundation, or government of a U.S. statement allocating a payment to a chap­ ceives the payment and such entity’s chapter 4
possession to: ter 4 withholding rate pool of U.S. payees, status and GIIN, when applicable.
Establish foreign status, Represent, if applicable, that the qualified For additional information on the require­
Establish the entity's chapter 4 status to intermediary is assuming primary chapters ments for FFI withholding statements, see
the extent required for chapter 4 purposes, 3 and 4 withholding responsibility and/or Treasury regulations section 1.1471­3(c)(3)(iii)
Claim that such person is the beneficial primary Form 1099 reporting and backup (B)(2).
owner of the income for which the form is withholding responsibility,
being furnished, and Represent that a foreign partnership or a Chapter 4 withholding statement. A
Claim an exemption from withholding un­ foreign simple or grantor trust is a with­ chapter 4 withholding statement must be provi­
der both chapter 3 and chapter 4 for such holding foreign partnership or a withhold­ ded by the following.
entity or that the entity is a foreign private ing foreign trust, A territory financial institution that does not
foundation subject to the 4% tax. See sec­ Represent that a foreign flow­through en­ agree to be treated as a U.S. person.
tion 1443 for the withholding required for a tity is a nonwithholding foreign partnership, A U.S. branch that is not a U.S. branch of a
payment made to such an entity. or a nonwithholding foreign trust, participating FFI.
Represent that the provider is a U.S. An NFFE or certified deemed­compliant
If the government or organization named on FFI that is a nonqualified intermediary,
branch of a foreign bank or insurance com­
the form is a partner in a partnership carrying on nonwithholding foreign partnership, or non­
pany and either is agreeing to be treated
a trade or business in the United States, the ef­ withholding foreign trust and is not the
as a U.S. person or is transmitting docu­
fectively connected income allocable to the payee.
mentation of the persons on whose behalf
partner is subject to withholding under section
it is acting for the payments, A chapter 4 withholding statement must
1446.
Represent its status as a qualified securi­ contain the following.
For purposes of chapter 3, a Form W­8EXP
ties lender with respect to payments of The name, address, TIN (if any), entity
with a revision date February 2006 provided to
U.S. source substitute dividends, type, and chapter 4 status of each payee.
you before January 1, 2015, will remain valid
Represent its status as a QI acting as a The amount allocated to each payee.
until the form’s validity expires under the appli­
QDD for certain payments, and A valid withholding certificate or other ap­
cable chapter 3 regulations. For purposes of
Represent that, for purposes of section propriate documentation sufficient to es­
chapter 4, a Form W­8EXP with a revision date
1446, it is an upper­tier foreign partnership tablish the chapter 4 status of each payee,
of February 2006 that is provided to you before
or a foreign grantor trust and that the form and each intermediary or flow­through en­
January 1, 2015, is and will remain valid to the
is being used to transmit the required doc­ tity that receives the payment on behalf of
extent permitted under chapter 4.
umentation. For information on qualifying the payee.
See also Foreign Governments and Certain as an upper­tier foreign partnership, see Any other information the withholding
Other Foreign Organizations, later. Regulations section 1.1446­5. agent reasonably requests in order to fulfill
For purposes of chapter 4, an intermediary its obligations under chapter 4.
Foreign Intermediaries or flow­through entity that is a participating FFI A chapter 4 withholding statement is permit­
and Foreign or registered deemed­compliant FFI receiving a ted to provide pooled allocation information with
Flow­Through Entities withholdable payment may, in lieu of providing respect to payees that are treated as nonpartici­
documentation for each payee, provide pooled pating FFIs.
allocation information as described under FFI
Payments made to a foreign intermediary or for­
withholding statement, later. Qualified Intermediaries
eign flow­through entity that is not a QI that as­
sumes primary chapters 3 and 4 withholding re­ FFI withholding statement. An FFI with­
sponsibility, a WP, a WT, or a branch treated as holding statement must be provided by a partic­ In most cases, a QI is any foreign intermediary
a U.S. person (see U.S. branches of foreign ipating FFI or registered deemed­compliant FFI that has entered into a QI agreement (dis­
banks and foreign insurance companies , ear­ (including a U.S. branch of a participating FFI cussed earlier) with the IRS. A foreign entity
lier) are treated as made to the payees on that is not treated as a U.S. person) that is a that is a QI acting as a QDD or that is acting
whose behalf the intermediary or entity acts ex­ nonqualified intermediary, nonwithholding for­ with respect to payments of substitute interest
cept when the intermediary or flow­through en­ eign partnership, nonwithholding foreign trust, (as permitted by the QI agreement) can act as a
tity is subject to chapter 4 withholding. See or a QI that makes an election to be withheld on QI even though it is not receiving payments as
Flow­through Entities and Foreign intermedia­ for chapter 4 purposes (i.e., a QI that does not an intermediary. A foreign entity that has re­
ries, earlier. The Form W­8IMY provided by a assume chapter 3 or 4 withholding responsibil­ ceived a QI employer identification number
foreign intermediary or flow­through entity must ity), as described later under Qualified Interme­ (QI­EIN) may represent on Form W­8IMY that it
be accompanied by additional information for diaries. is a QI. The QI can claim that it is a QI until the
you to be able to reliably associate the payment An FFI withholding statement may include IRS revokes its QI­EIN.
with a payee. The additional information re­ either payee­specific information or pooled in­
quired depends on the type of intermediary or formation. If the withholding statement includes A QI can be either an FFI or an NFFE. An
flow­through entity and the extent of the with­ pooled information, the withholding statement FFI (other than a retirement fund) that is a QI
holding responsibilities it assumes. must indicate the portion of the payment alloca­ must be a participating FFI (including a report­
ble to: ing Model 2 FFI), a registered deemed­compli­
Form W­8IMY, Certificate of Foreign Inter­ A chapter 4 withholding rate pool of U.S. ant FFI (including a reporting Model 1 FFI and a
mediary, Foreign Flow­Through Entity, or payees; nonreporting Model 2 FFI treated as registered
Certain U.S. Branches for United States Tax Each class of recalcitrant account holders deemed­compliant), or an FFI treated as a
Withholding and Reporting. This form is under Treasury regulations section deemed­compliant FFI under an applicable
used by foreign intermediaries and foreign 1.1471­4(d)(6) or a single pool for a QI; or Model 1 IGA that is subject to similar due dili­
flow­through entities, as well as certain U.S. A class of nonparticipating FFIs. gence and reporting requirements with respect
branches, to: to its U.S. accounts as those applicable to a
Represent that a foreign person is a quali­ If the withholding statement includes registered deemed­compliant FFI (including the
fied intermediary or nonqualified intermedi­ payee­specific information, it must indicate both requirement to register with the IRS) (defined in
ary,

Page 12 Publication 515 (2017)

the QI agreement as a “registered deemed­ 5. Provide sufficient information for you to al­ withholding rate pools and chapter 3 withhold­
compliant Model 1 IGA FFI”. Thus, you must locate the payment, as applicable, to ing rate pools, as applicable, and the part of the
identify the chapter 4 status of an FFI certifying chapter 3 withholding rate pools and, for payment attributable to withholding rate pools
its status as a QI as one of the chapter 4 sta­ payments that are withholdable payments, for each U.S. non­exempt recipient, unless the
tuses referenced in the preceding sentence on chapter 4 withholding rate pools of non­ alternative procedure applies for Form 1099 re­
a Form W­8IMY when a chapter 4 status is re­ participating FFIs and recalcitrant account porting and/or backup withholding purposes.
quired for chapter 4 purposes. holders when the QI has not assumed pri­ The QI must provide a Form W­9 or, in the ab­
mary chapter 3 or 4 withholding responsi­ sence of the form, the name, address, and TIN,
Responsibilities and documentation. Pay­ bility, and if available, for such person.
ments made to a QI that does not assume pri­
6. Provide sufficient information for you to al­ Primary chapters 3 and 4 withholding re­
mary chapters 3 and 4 withholding responsibili­
locate payments to each U.S. non­exempt sponsibilities and Form 1099 reporting and
ties are treated as paid to its account holders.
recipient or to a pool of U.S. payees to the backup withholding responsibilities as­
However, a QI is not required to provide you
extent described earlier under this head­ sumed. If you make a payment to a QI that as­
with documentation it obtains from its foreign
ing. sumes primary chapters 3 and 4 withholding re­
account holders or from U.S. exempt recipients
(U.S. persons exempt from Form 1099 report­ sponsibilities and primary Form 1099 reporting
The extent to which you must have withholding
ing). Instead, it provides you with a withholding and backup withholding responsibility, you can
rate pool information depends on the withhold­
statement that contains either chapter 3 or reliably associate the payment with valid docu­
ing and reporting obligations assumed by the
chapter 4 withholding rate pool information. A mentation provided that you receive a valid
QI.
chapter 4 withholding rate pool is a payment of Form W­8IMY. It is not necessary to associate
If a QI that is permitted to do so by the QI the payment with any chapter 3 or chapter 4
a single type of income that is a withholdable agreement obtains documentary evidence un­
payment that is allocated to payees that are withholding rate pools.
der the “know­your­customer” rules that apply If you make a payment to a QI that is also a
nonparticipating FFIs or recalcitrant account to the QI under local law, and the documentary
holders (in a single pool). A chapter 4 withhold­ QDD, the QI must provide a withholding state­
evidence is of a type specified in an attachment ment designating the accounts for which it acts
ing rate pool also means a payment of a single to the QI agreement, the documentary evidence
type of income that is allocated to U.S. payees as a QDD even if it assumes primary withhold­
remains valid until there is a change in circum­ ing responsibility for all payments, unless it is
when the QI provides the certification required stances or the QI knows the information is in­
on Form W­8IMY for allocating payments to this acting as a QDD for all payments it receives.
correct. A QI may rely on a Form W­8 until its
pool and a withholding statement. A QI may in­ validity expires under Treasury regulations sec­
clude in its chapter 4 withholding rate pools its Example. You make a payment of U.S.
tion 1.1441­1(e)(4)(ii) and may rely on docu­ source dividends to a QI. It has five customers:
direct account holders as well as account hold­ mentary evidence not obtained pursuant to
ers of another QI or a participating FFI or regis­ two are foreign persons who have provided
“know­your­customer” rules until its validity ex­ documentation entitling them to a 15% rate of
tered deemed­compliant FFI. With respect to a pires under Treasury regulations section
payment to a foreign person for which no chap­ withholding on dividends; two are foreign per­
1.6049­5(c). sons subject to a 30% rate of withholding on
ter 4 withholding is required, a chapter 3 with­
holding rate pool is a payment of a single type Primary chapters 3 and 4 withholding re­ dividends; and one is a U.S. individual who pro­
of income that is subject to a single rate of with­ sponsibilities not assumed. If a QI does not vides it with a Form W­9. Each customer is enti­
holding and that is reported on Form 1042­S assume primary chapters 3 and 4 withholding tled to 20% of the dividend payment. The QI
under a single chapter 4 exemption code. Pay­ responsibility or primary Form 1099 reporting does not assume any primary withholding re­
ments made to U.S. exempt recipients may also and backup withholding responsibility for the sponsibility. The QI gives you a Form W­8IMY
be included in a chapter 3 withholding rate pool payment, you can reliably associate the pay­ with which it associates the Form W­9 and a
to which withholding does not apply. ment with valid documentation only to the ex­ withholding statement that allocates 40% of the
tent you can reliably determine the part of the dividend to a 15% withholding rate pool, 40% to
A QI is required to provide you with informa­
payment that relates to each withholding rate a 30% withholding rate pool, and 20% to the
tion regarding U.S. non­exempt recipients (U.S.
pool for foreign and U.S. payees. Unless the al­ U.S. individual. You should report on Forms
persons subject to Form 1099 information re­
ternative procedure applies and the QI is per­ 1042­S 40% of the payment as made to a 15%
porting) and to provide you withholding rate
mitted to include U.S. non­exempt recipients in rate dividend pool and 40% of the payment as
pool information separately for each such U.S.
a chapter 4 withholding rate pool of U.S. pay­ made to a 30% rate dividend pool. The part of
person unless it has assumed primary Form
ees, the QI must provide you with a separate the payment allocable to the U.S. individual
1099 reporting and backup withholding respon­
withholding rate pool for each U.S. non­exempt (20%) is reportable on Form 1099­DIV.
sibility and meets the requirements to include
these recipients in a U.S. payee pool. For the recipient that must be reported on Form 1099. If
you and the QI agree, the QI may apply the al­ Joint account treatment. A QI may apply joint
alternative procedure for providing withholding
ternative procedures for U.S. non­exempt recip­ account treatment to a partnership or trust if the
rate pool information for U.S. non­exempt per­
ients by establishing a single withholding rate partnership or trust meets the following condi­
sons not included in a chapter 4 withholding
pool (not subject to backup withholding) for all tions.
rate pool of U.S. payees, see the Form W­8IMY
U.S. non­exempt recipient account holders for It is a nonwithholding foreign partnership or
instructions.
whom the QI is required to report on Form 1099 nonwithholding foreign trust that is either a
The withholding statement must: simple or grantor trust.
and has provided you with Forms W­9 prior to
1. Designate those accounts for which it acts you making the reportable payment, or, if appli­ It is a certified deemed­compliant FFI
as a qualified intermediary, cable, designated broker proceeds to which (other than a registered deemed­compliant
backup withholding does not apply. The QI Model 1 IGA FFI), an owner­documented
2. Designate those accounts for which it as­ FFI with respect to the QI, an exempt ben­
sumes primary chapters 3 and 4 withhold­ must provide a Form W­9 or, in the absence of
the form, the name, address, and TIN, if availa­ eficial owner, an NFFE, or is covered as an
ing responsibility and/or primary Form account that is excluded from the definition
1099 reporting and backup withholding re­ ble, for each U.S. non­exempt recipient.
of financial account under Annex II of an
sponsibility, Primary chapters 3 and 4 withholding re­ applicable IGA or under Regulations sec­
3. If applicable, designate the accounts for sponsibilities assumed. If you make a pay­ tion 1.1471­5(a) and has provided the QI
which it acts as a qualified securities ment to a QI that assumes primary chapters 3 with a certification that it has maintained
lender with respect to any U.S. source and 4 withholding responsibilities (but not pri­ such chapter 4 status during each certifica­
substitute dividend payments, mary Form 1099 reporting and backup with­ tion period.
holding responsibility), you can reliably asso­ It is a direct account holder of the QI.
4. If applicable, designate those accounts for ciate the payment with valid documentation only None of its partners, beneficiaries, or own­
which it acts as a QDD, to the extent you can reliably determine the part ers is a flow­through entity or is acting as
of the payment that relates to the chapter 4 an intermediary for a payment made by the

Publication 515 (2017) Page 13

 QI to the partnership or trust, and none of tion (discussed later), and, in certain circum­ status as a participating FFI, including a report­
its partners, beneficiaries, or owners is a stances, qualified intermediaries, withholding ing Model 2 FFI, or registered deemed­compli­
U.S. person. foreign partnerships, and withholding foreign ant FFI, including a reporting Model 1 FFI. If the
None of its foreign partners, beneficiaries, trusts. Notwithstanding these requirements, FFI withholding statement instead includes
or owners is subject to withholding or re­ separate Forms 1042­S are not issued to ac­ payee specific information for purposes of
porting under chapter 4. count holders that the QI is permitted to include chapter 4, it must indicate both the portion of
It agrees to make available upon request to in a chapter 4 withholding rate pool. the payment allocated to each payee and each
QI (or QI’s reviewer) records that establish payee’s chapter 4 status. The withholding state­
it has provided the QI with documentation Collective refund procedures. A QI may ment must also identify each intermediary or
for purposes of chapters 3 and 4 for all of seek a refund of tax withheld under chapters 3 flow­through entity that is receiving a payment
its partners, beneficiaries, or owners. and 4 on behalf of its account holders when the (excluding any intermediary or flow­through en­
QI has not issued a Form 1042­S to the account tity that is an account holder or interest holder in
For information on these rules, see section
holders that received the payment that was another QI, WP, or WT), each such entity’s
4.05 of the QI agreement in Revenue Procedure
subject to overwithholding. The account hold­ chapter 4 status and GIIN (if applicable) when
2014­39, 2014­29 I.R.B. 151 (as updated).
ers, therefore, are not required to file claims for required for chapter 4 purposes, and the chap­
Agency option. A QI may apply the agency refund with the IRS to obtain refunds, but rather ter 4 withholding rate pools associated with
option to a partnership or trust under which the may obtain them from the QI. A QI may obtain a each such entity.
partnership or trust agrees to act as an agent of refund of tax withheld under chapter 4, how­ A chapter 4 withholding statement must
the QI and to apply the provisions of the QI ever, to the extent permitted under the QI contain the name, address, TIN (if any), entity
agreement to its partners, beneficiaries, or own­ agreement. type, chapter 4 status of each payee, the
ers. A QI and a partnership or trust may only ap­ amount allocated to each payee, and a valid
ply the agency option if the partnership or trust Nonqualified Intermediaries withholding certificate or other documentation
meets the following conditions. sufficient to establish each payee’s chapter 4
It is a nonwithholding foreign partnership or If you are making a payment to an NQI or U.S. status for payees that are not included in a
nonwithholding foreign trust that is either a branch that is using Form W­8IMY to transmit chapter 4 withholding rate pool of nonparticipat­
simple or grantor trust. information about the branch's account holders ing FFIs. The withholding statement must also
It is either a direct account holder of the QI or customers, you can treat the payment (or a identify each intermediary or flow­through entity
or an indirect account holder of the QI that part of the payment) as reliably associated with that is receiving a payment (excluding any inter­
is a direct partner, beneficiary, or owner of valid documentation from a specific payee only mediary or flow­through entity that is an account
a partnership or trust to which the QI also if, prior to making the payment: holder or interest holder in another QI, WP, or
applies the agency option. You can allocate the payment to a valid WT), each such entity’s chapter 4 status and
It is an FFI that is a certified deemed­com­ Form W­8IMY, GIIN (if applicable), and the chapter 4 withhold­
pliant FFI (other than a registered You can reliably determine how much of ing rate pools associated with each such entity.
deemed­compliant Model 1 IGA FFI), an the payment relates to valid documentation For chapter 3 purposes. The withholding
owner­documented FFI with respect to the provided by a payee (a person that is not statement should allocate for chapter 3 purpo­
QI, an NFFE, an exempt beneficial owner, itself a foreign intermediary, flow­through ses only the portion of the payment that was not
or is covered as an account that is exclu­ entity, or U.S. branch with a chapter 4 with­ allocated to a chapter 4 withholding rate pool or
ded from the definition of financial account holding rate pool) (see Pooled withholding to a payee identified on a withholding statement
under Annex II of an applicable IGA or un­ information, later), and to whom withholding was applied under chap­
der Regulations section 1.1471­5(a) and You have sufficient information to report ter 4. For chapter 3 purposes, a withholding
has provided QI with a certification that it the payment on Form 1042­S or Form statement must include the information descri­
has maintained such chapter 4 status dur­ 1099, if reporting is required. bed below for a reportable amount.
ing each certification period.
None of its partners, beneficiaries, or own­ Withholding statement. The NQI or U.S. 1. The name, address, and TIN (if any, or if
ers is a withholding foreign trust, withhold­ branch must give you certain information on a required) of each person for whom docu­
ing foreign partnership, participating FFI, withholding statement that is associated with mentation is provided.
registered deemed­compliant FFI, regis­ the Form W­8IMY. A withholding statement
2. The type of documentation (documentary
tered deemed­compliant Model 1 IGA FFI, must be updated to keep the information accu­
evidence, Form W­8, or Form W­9) for ev­
or another qualified intermediary acting as rate prior to each payment.
ery person for whom documentation has
an intermediary for a payment made by the been provided, and, for a withholdable
For chapter 4 purposes. An NQI receiving
QI to the partnership or trust. payment, that the documentation estab­
a withholdable payment must provide a with­
It agrees to permit the QI to treat its direct lishes the payee’s chapter 4 status to the
holding statement which satisfies the require­
and indirect partners, beneficiaries, or extent required for chapter 4 purposes.
ments of an FFI withholding statement or, if the
owners as direct and indirect account hold­ NQI is not a participating FFI or registered 3. The status of the person for whom the
ers, respectively, of the QI under the QI deemed­compliant FFI, a chapter 4 withholding documentation has been provided, such
agreement. statement. as whether the person is a U.S. exempt re­
It agrees to comply with the compliance An FFI withholding statement may allocate cipient, U.S. non­exempt recipient, or a
procedures of the QI agreement. the payment to chapter 4 reporting rate pools foreign person. For a foreign person, the
For information on these rules, see section 4.06 (as appropriate), including a chapter 4 withhold­ statement must indicate whether the per­
of the QI agreement in Revenue Procedure ing rate pool for nonparticipating FFIs, recalci­ son is the beneficial owner or a foreign in­
2014­39, 2014­29 I.R.B. 151 (as updated). trant account holders (in each class of account termediary, flow­through entity, or a U.S.
holders as described in the chapter 4 regula­ branch that is not included in a chapter 4
Form 1042­S reporting. A QI is generally per­ tions), and, for an NQI that is a participating FFI withholding rate pool or in a pool of pay­
mitted to report payments made to its foreign (including a reporting Model 2 FFI) or a regis­ ees under the alternative procedures (see
account holders on a pooled basis rather than tered deemed­compliant FFI (including a report­ Alternative Procedure, later).
reporting payments to each account holder spe­ ing Model 1 FFI), U.S. payees. However, an
cifically. Pooled basis reporting is not available NQI may allocate a payment of a reportable 4. The type of recipient the person is, based
for payments to certain account holders, such amount (regardless of whether the payment is a on the recipient codes used on Form
as nonqualified intermediaries, flow­through en­ withholdable payment) to a chapter 4 withhold­ 1042­S.
tities (discussed earlier) and certain of their ac­ ing rate pool of U.S. payees when the NQI sat­ 5. Information allocating each payment, by
count holders and owners, private arrangement isfies the requirements for providing such a income type, to each payee (including
intermediaries, partnerships or trusts to which pool, including the requirement to certify to its U.S. exempt and non­exempt recipients)
the QI applies the joint account or agency op­

Page 14 Publication 515 (2017)

 for whom documentation has been provi­ withholding rate pool of U.S. payees) and pay­ 3 and 4 withholding responsibility for amounts
ded that is not included in a chapter 4 ees subject to chapter 4 withholding for whom that are distributed to, or included in the distrib­
withholding rate pool or in a pool of pay­ the NQI will provide payee specific information utive share of, any direct partner and may as­
ees under the alternative procedures (see in a 30­percent rate pool together with payees sume chapters 3 and 4 withholding responsibili­
Alternative Procedure, later). subject to chapter 3 withholding at the 30­per­ ties for certain of its indirect partners. The WP
cent rate. For the amount of the payment alloca­ must withhold the amount required to be with­
6. The rate of withholding that applies to
ble to a chapter 4 withholding rate pool of U.S. held. A WP must provide you with a Form
each foreign person to whom a payment is
payees, an NQI may include amounts allocable W­8IMY that certifies that the WP is acting in
allocated.
to the pool with other amounts exempt from that capacity and provides all other information
7. A foreign payee's country of residence. withholding (and an NQI may allocate payments and certifications required by the form. The
to this pool regardless of whether the payment Form W­8IMY must contain the WP­EIN and
8. If a reduced rate of withholding is claimed
is a withholdable payment) and may not other­ GIIN (if applicable).
under chapter 3, the basis for a reduced
wise apply these provisions for payments made
rate of withholding (for example, portfolio
to U.S. non­exempt recipients. The NQI must A WP can be either an FFI or an NFFE. An
interest, treaty benefit, etc.).
identify prior to the payment each chapter 4 FFI (other than a retirement fund) that is a WP
9. In the case of treaty benefits claimed by withholding rate pool to be allocated a portion of must be a participating FFI, a registered
entities, whether the applicable limitation the payment, in addition to each payee to be al­ deemed­compliant FFI, or an FFI treated as a
on benefits statement and the statement located the payments that is not included in deemed­compliant FFI under an applicable
that the foreign person derives the income such a pool. The NQI must then also allocate, Model 1 IGA that is subject to similar due dili­
for which treaty benefits are claimed, have by January 31 following the calendar year of the gence and reporting requirements with respect
been made. payment, the portion of the payment to each to its U.S. accounts as those applicable to a
such pool in addition to allocating the payment registered deemed­compliant FFI under Treas­
10. The name, address, and TIN (if any) and, ury regulations section 1.1471­5(f)(1) (including
to each payee that is not included in the pool.
for a withholdable payment, the chapter 4 the requirement to register with the IRS) (de­
status (if required) and GIIN (if applicable) Failure to provide allocation informa­ fined in the WP agreement as a “registered
of any other NQI, flow­through entity, or tion. If an NQI fails to provide you with the deemed­compliant Model 1 IGA FFI”). Thus, an
U.S. branch from which the payee will di­ payee specific allocation information for a with­ FFI certifying its status as a WP must provide
rectly receive a payment. holding rate pool or chapter 4 withholding rate you a Form W­8IMY that certifies to one of the
11. Any other information a withholding agent pool by January 31, you must not apply the al­ chapter 4 statuses referenced in the preceding
requests to fulfill its reporting and with­ ternative procedure to any of the NQI's with­ sentence when a chapter 4 status is required.
holding obligations. holding rate pools from that date forward. You
must treat the payees as undocumented and Responsibilities of WP. The WP must with­
Alternative procedure. Under this alternative apply the presumption rules, discussed later in hold under chapter 3 or 4 on the date it makes a
procedure the NQI can give you the information Presumption Rules. An NQI is deemed to have distribution of a withholdable payment or an
that allocates each payment to each foreign failed to provide specific allocation information if amount subject to chapter 3 withholding to a di­
and U.S. exempt recipient or chapter 4 with­ it does not give you such information for more rect foreign partner based on the Forms W­8 or
holding rate pool by January 31 following the than 10% of any one withholding rate pool. W­9 it receives from its partners. If the partner's
calendar year of payment, rather than prior to distributive share has not been distributed, the
the payment being made as otherwise required. However, if you receive such information by WP must withhold on the partner's distributive
To take advantage of this procedure, the NQI February 14, you may make the appropriate ad­ share on the earlier of the date that the partner­
must: (a) inform you, on its withholding state­ justments to repay any excess withholding in­ ship must mail or otherwise provide to the part­
ment, that it is using the alternative procedure; curred between February 1 and on or before ner a Schedule K­1 (Form 1065) or the due
and (b) obtain your consent. You must receive February 14. date for furnishing the statement (whether or
the withholding statement with all the required not the WP is required to furnish the statement).
information (other than item 5) prior to making If the NQI fails to allocate more than 10% of The WP may determine the amount of with­
the payment. the payment to a withholding rate pool by Feb­ holding based on a reasonable estimate of the
ruary 14 following the calendar year of pay­ partner's distributive share of income subject to
The alternative procedure cannot how­ ment, you must file a Form 1042­S for each ac­ withholding for the year. The WP must correct
! ever be used for payments to U.S. count holder in the pool on a pro­rata basis the estimated withholding to reflect the actual
CAUTION non­exempt recipients other than those
(treating a chapter 4 withholding rate pool as an distributive share on the earlier of the dates
recipients included in a chapter 4 withholding account holder for this purpose and excluding mentioned in the preceding paragraph. If that
rate pool of U.S. payees. See Chapter 4, later. U.S. exempt recipients). For example, if there date is after the due date (including extensions)
Therefore, an NQI must provide you with alloca­ are four account holders in a withholding rate for filing the WP's Forms 1042 and 1042­S for
tion information for any U.S. non­exempt recipi­ pool that receives a $100 payment and the NQI the calendar year, the WP may withhold and re­
ents not included in a chapter 4 withholding rate fails to allocate more than $10 of the payment, port any adjustments in the following calendar
pool of U.S. payees prior to a payment being you must file four Forms 1042­S, one for each year.
made. account holder in the pool, showing $25 of in­
come to each. You must also check the Form 1042 filing. The WP must file Form
Pooled withholding information. If an “Pro­rata Basis Reporting” box at the top of 1042 even if no amount was withheld. In addi­
NQI uses the alternative procedure, it must pro­ each form. If, however, the nonqualified inter­ tion to the information that is required for the
vide you with withholding rate pool information, mediary provides allocation information for 90% Form 1042, the WP must attach a statement
as opposed to individual allocation information, or more of the payment to a withholding rate showing the amounts of any over­ or un­
prior to the payment of a reportable amount. pool, the pro­rata reporting method is not re­ der­withholding adjustments and an explana­
The NQI must provide you with the payee spe­ quired. Instead, you must file a Form 1042­S for tion of those adjustments.
cific allocation information (information allocat­ each account holder for whom you have alloca­
ing each payment to each payee) by January Form 1042­S reporting. The WP can
tion information and report the unallocated part
31 following the calendar year of payment ex­ elect to report payments made to its foreign di­
of the payment on a Form 1042­S issued to “un­
cept as otherwise permitted for chapter 4 pur­ rect partners on a pooled basis for chapter 3
known recipient.”
poses when using this procedure. purposes rather than reporting payments to
each direct partner in addition to reporting pay­
Chapter 4. In the case of a reportable amount Withholding Foreign Partnerships ments in a chapter 4 withholding rate pool to the
that is also a withholdable payment, an NQI extent the WP is permitted to do so based on its
may include amounts allocable to a chapter 4 If you are making payments to a WP, you do not chapter 4 status. A WP can treat as its direct
withholding rate pool (other than a chapter 4 have to withhold if the WP is acting in that ca­ partners those indirect partners of the WP for
pacity. The WP must assume primary chapters

Publication 515 (2017) Page 15

which it applies joint account treatment or the It is a certified deemed­compliant FFI 8.03 of the WP agreement and providing
agency option (described later). A WP must (other than a registered deemed­compliant the WP with documentation or other infor­
otherwise issue a Form 1042­S to each partner Model 1 IGA FFI as defined in the WP mation for review.
to the extent it is required to do so under the agreement), an owner­documented FFI, an It agrees to comply with the documentation
WP agreement. You may issue a single Form exempt beneficial owner, or an NFFE requirements of a WP in the WP agree­
1042­S for all payments you make to a WP (other than a WP or WT). ment.
other than payments for which the entity does It is a direct partner of the WP. For more information on applying these rules,
not act as a WP. You may, however, have Form None of its partners, beneficiaries, or own­ see section 9.02 of the WP agreement in
1099 requirements for certain indirect partners ers is a flow­through entity or intermediary. Revenue Procedure 2014­47, 2014­35 I.R.B.
of a WP that are U.S. non­exempt recipients. None of the partnership’s or trust’s part­ 393 (as may be amended).
ners, beneficiaries, or owners is a U.S.
Collective refund procedures. A WP may person or is subject to withholding or re­
seek a refund of tax withheld under chapters 3 WP acting for indirect partners. A WP may
porting under chapter 4. act as a WP with respect to an indirect partner
and 4 on behalf of its partners when the WP has It agrees to make available upon request to
not issued a Form 1042­S to the partners that of the WP that is not a U.S. non­exempt recipi­
the WP (or the WP’s auditor) records that ent. However, a WP may act as a WP for an in­
received the payment that was subject to over­ establish it has provided the WP with doc­
withholding. The partners, therefore, are not re­ direct partner that is a U.S. non­exempt recipi­
umentation for purposes of chapters 3 and ent if the indirect partner is included in a
quired to file claims for refund with the IRS to 4 for all of its partners, beneficiaries, or
obtain refunds, but rather may obtain them from passthrough partner’s chapter 4 withholding
owners. rate pool of recalcitrant account holders or U.S.
the WP. A WP may obtain a refund of tax with­
held under chapter 4 to the extent permitted un­ For more information on applying these rules, payees. A WP acting as a WP for an indirect
der the WP agreement. see section 9.01 of the WP agreement in partner is not required to forward to its withhold­
Revenue Procedure 2014­47, 2014­35 I.R.B. ing agent the documentation and the withhold­
Reporting of U.S. partners. A WP must 393 (as may be amended). ing statement of the passthrough partner and
report its U.S. partners on Schedule K­1 to the indirect partner that the WP would have other­
extent required under the WP agreement. If the Agency option. A WP may apply the agency wise been required to provide under the re­
WP is an FFI, it is also required to report each of option to a partnership or trust under which the quirements of a nonwithholding foreign partner­
its U.S. accounts (or U.S. reportable accounts if partnership or trust agrees to act as an agent of ship. See Not acting as WP, later. However, a
a reporting Model 1 FFI) on Form 8966 consis­ the WP and to apply the provisions of the WP WP must provide the withholding agent with
tent with its chapter 4 requirements or the re­ agreement to its partners, beneficiaries, or own­ documentation and any other information from
quirements of an IGA. If the WP is an NFFE, ers. A WP that applies the agency option must any passthrough partner whose direct or indi­
WP must file Form 8966 to report any partner elect to perform pool reporting for amounts sub­ rect partner, beneficiary, or owner is a U.S.
that is an NFFE (other than an excepted NFFE) ject to chapter 3 withholding that either are not non­exempt recipient unless the recipient is in­
with one or more substantial U.S. owners (or, withholdable payments or are withholdable pay­ cluded in the passthrough partner’s chapter 4
under an applicable IGA, controlling persons ments for which no chapter 4 withholding is re­ withholding rate pool of recalcitrant account
that are specified U.S. persons) if the NFFE is quired and that the WP distributes to, or in­ holders or U.S. payees. If WP is making a pay­
the beneficial owner of a withholdable payment cludes in the distributive share of, a foreign ment that is a withholdable payment, the pass­
received by the WP. The WP must also file a direct partner. A WP and a partnership or trust through partner’s withholding statement must
Form 8966 to report withholdable payments may only apply the agency option if the partner­ meet the requirements of Treasury regulations
made to a passthrough partner for which the ship or trust meets the following conditions: section 1.1471­3(c)(3)(iii)(B). The passthrough
WP acts under the WP agreement that provides It is a nonwithholding foreign partnership or partner’s withholding statement must include
information on an account holder (or interest nonwithholding foreign trust that is either a the account holders or interest holders of the
holder) that is an NFFE (other than an excepted simple or grantor trust. passthrough partner in chapter 4 withholding
NFFE) with one or more substantial U.S. own­ It is either a direct partner of the WP or an rate pools (to the extent permitted), and, for an
ers (or, under an applicable IGA, controlling indirect partner of the WP that is a direct amount subject to chapter 3 withholding that is
persons that are specified U.S. persons) and partner, beneficiary, or owner of a partner­ not a withholdable payment or is a withholdable
that is the beneficial owner of the withholdable ship or trust to which the WP also applies payment for which chapter 4 withholding is not
payment received by WP, unless the pass­ the agency option. required, valid documentation provided by the
through partner certifies to the WP that it is re­ It is an FFI that is a certified deemed­com­ account holders or interest holders of the pass­
porting on the account holder (or interest pliant FFI (other than a registered through partner that are not themselves quali­
holder) pursuant to its U.S. account reporting deemed­compliant Model 1 IGA FFI as de­ fied intermediaries or flow­through entities.
requirements. The preceding sentence applies fined in the WP agreement), an For more information on applying these
with respect to a passthrough partner to which owner­documented FFI, an NFFE, or an rules, see section 9.03 of the WP agreement in
WP applies the agency option or which has exempt beneficial owner. Revenue Procedure 2014­47, 2014­35 I.R.B.
partners, beneficiaries, or owners that are indi­ None of its partners, beneficiaries, or own­ 393 (as may be amended).
rect partners of WP. ers is a WT, WP, participating FFI, regis­
tered deemed­compliant FFI, registered Not acting as WP. A foreign partnership that
Joint account treatment. Under special pro­ deemed­compliant Model 1 IGA FFI (as is not acting as a WP is a nonwithholding for­
cedures provided in the WP agreement, a WP defined in the WP agreement), or QI acting eign partnership. This occurs if a WP is not act­
may apply joint account treatment to a partner­ as an intermediary for a payment made by ing in that capacity for some or all of the
ship or trust that is a direct partner of the WP. A the WP to the partnership or trust. amounts it receives from you.
WP that applies the joint account option must The WP may not act as a withholding for­ You must treat payments made to a non­
elect to perform pool reporting for amounts sub­ eign partnership with respect to any direct withholding foreign partnership as made to the
ject to chapter 3 withholding that either are not or indirect partner of the partnership or partners of the partnership. The partnership
withholdable payments or are withholdable pay­ trust that is a U.S. non­exempt recipient, must provide you with a Form W­8IMY (with
ments for which no chapter 4 withholding is re­ unless the U.S. non­exempt recipient is a Part VIII completed), a withholding statement
quired and that the WP distributes to, or in­ partner of an owner­documented FFI or identifying the amounts, the withholding certifi­
cludes in the distributive share of, a foreign passive NFFE to which the WP applies the cates or documentary evidence of the partners,
direct partner. These rules only apply to a part­ agency option and is included in the WP’s and the information shown earlier under With­
nership or trust that meets the following condi­ U.S. payee pool. holding statement under Nonqualified Interme­
tions. It agrees to comply with the compliance diaries.
It is a nonwithholding foreign partnership or procedures described in section 8.05 of
nonwithholding foreign trust that is either a the WP agreement by providing the WP
simple or grantor trust. with the certification described in section

Page 16 Publication 515 (2017)

Withholding Foreign Trusts for chapter 3 purposes rather than reporting is not required to report with respect to a U.S.
payments made to each foreign direct benefi­ beneficiary of WT on Form 3520­A, then the WT
If you are making payments to a WT, you do not ciary or owner in addition to reporting payments must report with respect to such beneficiary on
have to withhold if the WT is acting in that ca­ in a chapter 4 withholding rate pool to the extent Form 8966 as required in the WT agreement. A
pacity. The WT must assume primary chapters the WT is permitted to do so based on its chap­ beneficiary for this purpose means a beneficiary
3 and 4 withholding responsibility for amounts ter 4 status. A WT can treat as its direct benefi­ that receives a distribution from the WT during
that are distributed to, or included in the distrib­ ciaries or owners those indirect beneficiaries or the year or that is required to include an amount
utive share of, any direct beneficiary or owner owners of the WT for which it applies joint ac­ in gross income under sections 652(a) or
and may assume primary chapters 3 and 4 count treatment or the agency option (descri­ 662(a) with respect to the WT.
withholding responsibility for certain of its indi­ bed later). A WT must otherwise issue a Form
rect beneficiaries or owners. The WT must with­ 1042­S to each beneficiary or owner to the ex­ Joint account treatment. Under special pro­
hold the amount required to be withheld. A WT tent it is required to do so under the WT agree­ cedures provided in the WT agreement, a WT
must provide you with a Form W­8IMY that cer­ ment. You may issue a single Form 1042­S for may apply joint account treatment to a partner­
tifies that the WT is acting in that capacity and all payments you make to a WT other than pay­ ship or trust that is a direct beneficiary or owner
provides all other information and certifications ments for which the entity does not act as a WT. of the WT. A WT that applies the joint account
required by the form. The Form W­8IMY must You may, however, have Form 1099 require­ option must elect to perform pool reporting for
contain the WT­EIN and GIIN (if applicable). ments for certain indirect beneficiaries or own­ amounts subject to chapter 3 withholding that
ers of a WT that are U.S. non­exempt recipi­ either are not withholdable payments or are
A WT can be either an FFI or an NFFE. An ents. withholdable payments for which no chapter 4
FFI (other than a retirement fund) that is a WT withholding is required and that the WT distrib­
must be a participating FFI, a registered Collective refund procedures. A WT utes to, or includes in the distributive share of, a
deemed­compliant FFI, or an FFI treated as a may seek a refund of tax withheld under chap­ foreign direct beneficiary or owner. These rules
deemed­compliant FFI under an applicable ters 3 and 4 on behalf of its beneficiaries or only apply to a partnership or trust that meets
Model 1 IGA that is subject to similar due dili­ owners when the WT has not issued a Form the following conditions:
gence and reporting requirements with respect 1042­S to the beneficiaries or owners that re­ It is a nonwithholding foreign partnership or
to its U.S. accounts as those applicable to a ceived the payment that was subject to over­ nonwithholding foreign trust that is either a
registered deemed­compliant FFI under Treas­ withholding. The beneficiaries or owners, there­ simple or grantor trust.
ury regulations section 1.1471­5(f)(1) (including fore, are not required to file claims for refund It is a certified deemed­compliant FFI
the requirement to register with the IRS) (de­ with the IRS to obtain refunds, but rather may (other than a registered deemed­compliant
fined in the WT agreement as a “registered obtain them from the WT. A WT may obtain a Model 1 IGA FFI as defined in the WT
deemed­compliant Model 1 IGA FFI”). Thus, refund of tax withheld under chapter 4 to the ex­ agreement), an owner­documented FFI, an
you must identify the chapter 4 status of an FFI tent permitted under the WT agreement. exempt beneficial owner, or an NFFE
certifying its status as a WT as one of the chap­ Reporting of U.S. beneficiaries or own­ (other than a WP or WT).
ter 4 statuses referenced in the preceding sen­ ers. If the WT is a grantor trust with U.S. own­ It is a direct beneficiary or owner of the
tence on a Form W­8IMY when a chapter 4 sta­ ers, the WT is required to file Form 3520­A, An­ WT.
tus is required for chapter 4 purposes. nual Information Return of a Foreign Trust with None of its partners, beneficiaries, or own­
a U.S. Owner, and to provide statements to a ers is a flow­through entity or intermediary.
Responsibilities of WT. The WT must with­ U.S. owner, as well as each U.S. beneficiary None of the partnership’s or trust’s part­
hold on the date it makes a distribution of a who is not an owner and receives a distribution. ners, beneficiaries, or owners is a U.S.
withholdable payment or an amount subject to If the WT is an FFI, it is required to report each person or is subject to withholding or re­
chapter 3 withholding to a direct foreign benefi­ of its U.S. accounts (or U.S. reportable ac­ porting under chapter 4.
ciary or owner. If the beneficiary's or owner's counts if a reporting Model 1 FFI) on Form 8966 It agrees to make available upon request to
distributive share has not been distributed, the consistent with its FATCA requirements or the the WT (or the WT’s auditor) records that
WT must withhold on the beneficiary's or own­ requirements of an IGA. If the WT is an NFFE, establish it has provided the WT with docu­
er's distributive share on the earlier of the date WT must file Form 8966 to report any benefi­ mentation for purposes of chapters 3 and 4
that the trust must mail or otherwise provide to ciary or owner that is an NFFE (other than an for all of its partners, beneficiaries, or own­
the beneficiary or owner the statement required excepted NFFE) with one or more substantial ers.
under section 6048(b) or the due date for fur­ U.S. owners (or, under an applicable IGA, con­ For more information on applying these rules,
nishing the statement (whether or not the WT is trolling persons that are specified U.S. persons) see section 9.01 of the WT agreement found in
required to furnish the statement). if the NFFE is the beneficial owner of a with­ Revenue Procedure 2014­47, 2014­35 I.R.B.
The WT may determine the amount of with­ holdable payment received by the WT. The WT 393 (as may be amended).
holding based on a reasonable estimate of the must also file a Form 8966 to report withholda­
beneficiary's or owner's distributive share of in­ ble payments made to a passthrough benefi­ Agency option. A WT may apply the agency
come subject to withholding for the year. The ciary or owner for which the WT acts under the option to a partnership or trust under which the
WT must correct the estimated withholding to WT agreement that provides information on an partnership or trust agrees to act as an agent of
reflect the actual distributive share on the earlier account holder (or interest holder) that is an the WT and to apply the provisions of the WT
of the dates mentioned in the preceding para­ NFFE (other than an excepted NFFE) with one agreement to its partners, beneficiaries, or own­
graph. If that date is after the due date (includ­ or more substantial U.S. owners (or, under an ers. A WT that applies the agency option must
ing extensions) for filing the WT's Forms 1042 applicable IGA, controlling persons that are elect to perform pool reporting for amounts sub­
and 1042­S for the calendar year, the WT may specified U.S. persons) and that is the benefi­ ject to chapter 3 withholding that either are not
withhold and report any adjustments in the fol­ cial owner of the withholdable payment re­ withholdable payments or are withholdable pay­
lowing calendar year. ceived by WT, unless the passthrough benefi­ ments for which no chapter 4 withholding is re­
ciary or owner certifies to the WT that it is quired and that the WT distributes to, or in­
Form 1042 filing. The WT must file Form
reporting on the account holder (or interest cludes in the distributive share of, a foreign
1042 even if no amount was withheld. In addi­
holder) pursuant to its U.S. account reporting direct beneficiary or owner. A WT and a part­
tion to the information that is required for the
requirements. The preceding sentence applies nership or trust may only apply the agency op­
Form 1042, the WT must attach a statement
with respect to a passthrough beneficiary or tion if the partnership or trust meets the follow­
showing the amounts of any over­ or un­
owner to which WT applies the agency option ing conditions:
der­withholding adjustments and an explana­
or which has partners, beneficiaries, or owners It is a nonwithholding foreign partnership or
tion of those adjustments.
that are indirect beneficiaries or owners of WT. nonwithholding foreign trust that is either a
Form 1042­S reporting. The WT can In addition, if the WT is not a participating FFI, a simple or grantor trust.
elect to report payments made to its foreign di­ registered deemed­compliant FFI, or a regis­ It is either a direct beneficiary or owner of
rect beneficiaries or owners on a pooled basis tered deemed­compliant Model 1 IGA FFI and the WT or an indirect beneficiary or owner

Publication 515 (2017) Page 17

 of the WT that is a direct partner, benefi­ ciary’s or owner’s withholding statement must person’s chapter 3 claim is unreliable or incor­
ciary, or owner of a partnership or trust to include the account holders or interest holders rect based on documentation collected for AML
which the WT also applies the agency op­ of the passthrough beneficiary or owner in purposes until 30 days after the obligation is
tion. chapter 4 withholding rate pools (to the extent executed, or 30 days after the account is
It is an FFI that is a certified deemed­com­ permitted), and, for an amount subject to chap­ opened for such person, whichever is applica­
pliant FFI (other than a registered ter 3 withholding that is not a withholdable pay­ ble.
deemed­compliant Model 1 IGA FFI as de­ ment or is a withholdable payment for which
fined in the WT agreement), an chapter 4 withholding is not required, valid doc­ Financial institutions, insurance companies,
owner­documented FFI, an NFFE, or an umentation provided by the account holders or or brokers or dealers in securities have reason
exempt beneficial owner. interest holders of the passthrough beneficiary to know that documentation provided by a di­
None of its partners, beneficiaries, or own­ or owner that are not themselves qualified inter­ rect account holder is unreliable or incorrect
ers is a WT, WP, participating FFI, regis­ mediaries or flow­through entities. only in the circumstances discussed next. If the
tered deemed­compliant FFI, registered For more information on applying these documentation is considered unreliable or in­
deemed­compliant Model 1 IGA FFI (as rules, see section 9.03 of the WT agreement in correct, you must get new documentation to
defined in the WT agreement), or a quali­ Revenue Procedure 2014­47, 2014­35 I.R.B. support the payee’s claimed status or may rely
fied intermediary acting as an intermediary 393 (as may be amended). on the original documentation if you receive the
for a payment made by the WT to the part­ additional statements and/or documentation
nership or trust. Not acting as WT. A foreign trust that is not discussed later and are a withholding agent de­
The WT may not act as a withholding for­ acting as a WT is a nonwithholding foreign trust. scribed above with respect to a direct account
eign trust with respect to any direct or indi­ This occurs if a WT is not acting in that capacity holder (defined in Treasury regulations section
rect beneficiary or owner of the partnership for some or all of the amounts it receives from 1.1441­7(b)(3)(i)). Such documentation is de­
or trust that is a U.S. non­exempt recipient, you. scribed in Treasury regulations section
unless the U.S. non­exempt recipient is a In most cases, you must treat payments 1.1471­3(c)(5)(i).
beneficiary or owner of an owner­docu­ made to a nonwithholding foreign trust as made
mented FFI or passive NFFE to which the to the beneficiaries of a simple trust or the own­ The circumstances, discussed next, also
WT applies the agency option and is inclu­ ers of a grantor trust. The trust must provide apply to other withholding agents. However,
ded in the WT’s U.S. payee pool. you with a Form W­8IMY (with Part VIII comple­ these withholding agents are not limited to
It agrees to comply with the compliance ted), a withholding statement identifying the these circumstances in determining if they have
procedures described in section 8.05 of amounts, the withholding certificates or docu­ reason to know that documentation is unreliable
the WT agreement by providing the WT mentary evidence of the beneficiaries or own­ or incorrect. These withholding agents cannot
with the certification described in section ers, and the information shown earlier under base their determination on the receipt of addi­
8.03 of the WT agreement and providing Withholding statement under Nonqualified Inter­ tional statements or documents. They need to
the WT with documentation or other infor­ mediaries. get new documentation.
mation for review.
It agrees to comply with the documentation Withholding Certificates
requirements of a WT in the WT agree­ Standards of Knowledge
ment. for Purposes of Chapter 3 You have reason to know that a Form W­8 pro­
For more information on applying these rules, vided by a direct account holder that is a foreign
see section 9.02 of the WT agreement in You must withhold in accordance with the pre­ person is unreliable or incorrect if:
Revenue Procedure 2014­47, 2014­35 I.R.B. sumption rules (discussed later) if you know or The Form W­8 is incomplete with respect
393 (as may be amended). have reason to know that a withholding certifi­ to any item on the form that is relevant to
cate or documentary evidence provided by a the claims made by the account holder;
WT acting for indirect beneficiaries or own­ payee is unreliable or incorrect to establish the The Form W­8 contains any information
ers. A WT may act as a WT with respect to an payee's status for chapter 3 purposes. If you that is inconsistent with the account hold­
indirect beneficiary or owner of the WT that is rely on an agent to obtain documentation, you er's claim;
not a U.S. non­exempt recipient. However, a are considered to know, or have reason to The Form W­8 lacks information necessary
WT may act as a WT for an indirect beneficiary know, the facts that are within the knowledge of to establish entitlement to a reduced rate
or owner that is a U.S. non­exempt recipient if your agent for this purpose. of withholding, if a reduced rate is claimed;
the indirect beneficiary or owner is included in a or
passthrough beneficiary’s or owner’s chapter 4 Reason To Know You have information not contained on the
withholding rate pool of recalcitrant account form that is inconsistent with the claims
holders or U.S. payees. A WT acting as a WT In general, you are considered to have reason made on the form.
for an indirect beneficiary or owner is not re­ to know that a claim of foreign status or of a re­
quired to forward to its withholding agent the duced rate of withholding is incorrect if state­ The rules below apply to withholding agents
documentation and the withholding statement ments contained in the withholding certificate or that are financial institutions, insurance compa­
of the passthrough beneficiary or owner and in­ other documentation, or other relevant facts of nies, or brokers or dealers in securities.
direct beneficiary or owner that the WT would which you have knowledge, would cause a rea­
have otherwise been required to provide under sonably prudent person in your position to Limits on reason to know for preexisting
the requirements of a nonwithholding foreign question the claims made. obligations. With respect to a preexisting obli­
trust. See Not acting as WT, later. However, a gation (i.e., an obligation, including an account,
WT must provide the withholding agent with held by an individual that is outstanding on June
For an obligation that is not a preexisting ob­ 30, 2014, or an obligation, including an account,
documentation and any other information from ligation (i.e., an obligation, including an ac­
any passthrough beneficiary or owner whose di­ held by an entity that is opened, executed, or is­
count, held by an individual that is outstanding sued before January 1, 2015), if you have docu­
rect or indirect partner, beneficiary, or owner is on June 30, 2014, or an obligation, including an
a U.S. non­exempt recipient unless the recipi­ mented the foreign status of an account holder
account, held by an entity that is opened, exe­ for purposes of chapter 3 or 61 prior to July 1,
ent is included in the passthrough beneficiary’s cuted, or issued before January 1, 2015), you
or owner’s chapter 4 withholding rate pool of re­ 2014, you may continue to rely on that docu­
have reason to know that an account holder’s mentation. In addition, if you make a payment to
calcitrant account holders or U.S. payees. If WT chapter 3 claim is unreliable or incorrect if any
is making a payment that is a withholdable pay­ a new entity account holder that you treat as a
information contained in your account opening preexisting entity account under Notice
ment, the passthrough beneficiary’s or owner’s files or other account information conflicts with
withholding statement must meet the require­ 2014­33, you may apply the standards of
the account holder’s claim. For an obligation knowledge in Treasury Regulations sections
ments of Treasury regulations section other than a preexisting obligation, you will not
1.1471­3(c)(3)(iii)(B). The passthrough benefi­ 1.1441­7(b)(5) and (b)(8) that were applicable
be considered to have reason to know that a prior to the issuance of the temporary

Page 18 Publication 515 (2017)

regulations. See Notice 2014­59, 2014­44 maintained and that country has a tax manent residence address that is not in the
I.R.B. 747. However, if you review documenta­ treaty or information exchange agree­ treaty country,
tion for an individual account holder claiming ment in effect with the United States; The permanent residence address on the
foreign status that contains a U.S. place of birth or Form W­8 is in the treaty country but the
or if you are notified of a change in circumstan­ withholding certificate (or your account in­
d. You have classified the account
ces, the obligation will be treated as having a formation) contains a mailing address that
holder as a U.S person in your ac­
change in circumstances as of the date you re­ is not in the treaty country,
count information and you possess or
view the documentation or receive the notifica­ You have a current mailing address in your
obtain documentary evidence evi­
tion, and you will then have reason to know that account information outside the treaty
dencing citizenship in a country other
the documentation is unreliable or incorrect. country, or
than the United States.
However, if you are reviewing documentation The account holder has standing instruc­
provided by an entity before January 1, 2015, 2. You receive the Form W­8BEN­E from an tions for you to pay amounts from its ac­
you will not be required to treat the additional entity that is not a flow­through entity and: count to an address or an account not in
U.S. indicia added to Treasury Regulations sec­ the treaty country.
a. You have in your possession or obtain
tion 1.1441­7(b) by the temporary regulations
documentation establishing foreign You may, however, rely on a Form W­8 as
as a change in circumstances. See Notice
status that substantiates that the en­ establishing an account holder's claim of a re­
2014­59, 2014­44 I.R.B. 747.
tity is organized or created under for­ duced rate of withholding under a treaty if any
eign law, or of the following apply.
Establishment of foreign status by certain
withholding agents. You have reason to b. With respect to an offshore obligation, 1. The permanent residence address is not
know that a Form W­8BEN or W­8BEN­E is un­ if you classify the entity as a resident in the treaty country and:
reliable or incorrect to establish a direct account of the country where the obligation is a. The account holder provides a rea­
holder's status as a foreign person if: maintained and you are required to sonable explanation for the perma­
report payments to the entity annually nent residence address outside the
1. The Form W­8 has a current permanent
to the tax authority of the country treaty country, or
residence address in the United States;
where the obligation is maintained
2. The Form W­8 has a current mailing ad­ and that country has a tax treaty or in­ b. You possess or obtain documentary
dress in the United States; formation exchange agreement in ef­ evidence described in Treasury regu­
fect with the United States. lations section 1.1471­3(c)(5)(i) that
3. You have a current residence or current
establishes residency in a treaty
mailing address as part of your account in­ 3. The account holder (whether an individual country.
formation that is an address in the United or an entity) has provided standing instruc­
States; tions to make payments with respect to an 2. The mailing address is not in the treaty
offshore obligation to an address in, or an country and:
4. The account holder notifies you of a new
account maintained in, the United States, a. You possess or obtain documentary
residence or mailing address in the United
unless the account holder provides a rea­ evidence described in Treasury regu­
States;
sonable explanation in writing that sup­ lations section 1.1471­3(c)(5)(i) (that
5. You have classified the account holder as ports its foreign status or provides docu­ does not contain an address outside
a U.S. person in your account information; mentary evidence supporting its foreign the treaty country) supporting the ben­
or status. eficial owner's claim of residence in
6. You have a current telephone number for 4. If an individual account holder provides a the treaty country,
the account holder in the United States Form W­8BEN to establish the individual’s b. You possess or obtain documentation
and no telephone number for the account foreign status, and you have, either on ac­ that establishes that the beneficial
holder outside the United States (only to companying documentation or as part of owner is an entity organized in a
the extent described in Regulations sec­ your account information, an unambigu­ treaty country,
tion 1.1441­7(b)(5)). ous indication of a place of birth for the in­
dividual in the United States, you may not c. You know that the address outside
You may, however, rely on a Form W­8 as the treaty country is a branch of the
rely on the Form W­8BEN unless you pos­
establishing the account holder's foreign status account holder that is a resident of the
sess or obtain documentary evidence evi­
if any of the following apply: treaty country, or
dencing citizenship in a country other than
1. You receive the Form W­8BEN from an in­ the United States and either (i) a copy of d. You obtain a written statement from
dividual and: the individual’s Certificate of Loss of Na­ the beneficial owner that reasonably
tionality of the United States or (ii) a rea­ establishes its entitlement to treaty
a. You possess or obtain documentary sonable written explanation for the individ­
evidence (that does not contain a U.S. benefits.
ual’s renunciation of U.S. citizenship (or,
address) that supports the claim of under an applicable IGA, the reason the 3. You have instructions to pay amounts out­
foreign status, and the individual pro­ individual does not have a Certificate of side the treaty country and the account
vides you with a reasonable explana­ Loss of Nationality of the United States holder gives you a reasonable explana­
tion in writing supporting the claim of despite relinquishing its U.S. citizenship), tion, in writing, establishing residence in
foreign status; or the reason the individual did not obtain the applicable treaty country or you pos­
b. If you make a payment outside the U.S. citizenship at birth. sess or obtain documentary evidence de­
U.S. with respect to an offshore obli­ scribed in Treasury regulations section
gation and you possess or obtain Claim of reduced rate of withholding under 1.1471­3(c)(5)(i) establishing the account
documentary evidence establishing treaty by certain withholding agents. You holder’s residence in the treaty country.
foreign status that does not contain a have reason to know that a Form W­8BEN or
U.S. address; W­8BEN­E provided by a direct account holder Documentary Evidence
to claim a reduced rate of withholding under a
c. With respect to an offshore obligation, treaty is unreliable or incorrect for purposes of You have reason to know that documentary evi­
if you classify the individual as a resi­ establishing the account holder's residency in a dence provided by a direct account holder to
dent of the country where the obliga­ treaty country if: support a claim of foreign status is unreliable or
tion is maintained and you are re­ The permanent residence address on the incorrect if:
quired to report payments to the Form W­8 is not in the treaty country or the The documentary evidence does not rea­
individual annually to the tax authority beneficial owner notifies you of a new per­ sonably establish the identity of the person
of the country where the obligation is
presenting the documentary evidence;

Publication 515 (2017) Page 19

 The documentary evidence contains infor­ holder provides a reasonable explan­ the individual does not have a Certificate
mation that is inconsistent with the account ation in writing supporting the account of Loss of Nationality of the United States
holder's claim of a reduced rate of with­ holder’s foreign status), or despite relinquishing U.S. citizenship) or
holding; or the reason the individual did not obtain
c. For a payment made with respect to
You have account information that is in­ U.S. citizenship at birth.
an offshore obligation, if you classify
consistent with the account holder's claim
the individual as a resident of the
of a reduced rate of withholding, or the Claim of reduced rate of withholding under
country where the obligation is main­
documentary evidence lacks information treaty. You have reason to know that docu­
tained, you are required to report a
necessary to establish a reduced rate of mentary evidence provided by a direct account
payment made to the individual annu­
withholding. For example, the documen­ holder to claim a reduced rate of withholding
ally on a tax information statement
tary evidence does not contain, or is not under a treaty is unreliable or incorrect for pur­
filed with that country’s tax authority
supplemented by, statements regarding poses of establishing the account holder's resi­
as part of the resident reporting re­
the derivation of the income or compliance dency in a treaty country if:
quirements, and that country has a tax
with limitations on benefits provisions in You have a mailing or residence address
information exchange agreement or
the case of an entity claiming treaty bene­ for the account holder that is outside the
income tax treaty in effect with the
fits. applicable treaty country,
United States.
You have no permanent residence for the
Establishment of foreign status. You have 2. The mailing or residence address or sole account holder, or
reason to know that documentary evidence is telephone number is in the United States, The account holder has standing instruc­
unreliable or incorrect to establish a direct ac­ you receive the documentary evidence tions for you to pay amounts from its ac­
count holder's status as a foreign person if: from an entity (other than a flow­through count to an address or account not in the
For documentary evidence received prior entity) and: treaty country.
to January 1, 2001, if you have actual
a. You possess or obtain documentation You may, however, rely on documentary evi­
knowledge that the account holder is a
to substantiate that the entity is ac­ dence as establishing an account holder's claim
U.S. person or if you have a mailing or resi­
tually organized or created under the of a reduced rate of withholding under a treaty if
dence address for the account holder in
laws of a foreign country, any of the following apply.
the United States.
For documentary evidence received after b. You obtain a valid Form W­8 that con­ 1. The mailing or residence address is out­
December 31, 2000, if you do not have a tains a permanent residence address side the treaty country and:
permanent residence address for the ac­ and mailing address outside the Uni­ a. You possess or obtain additional
count holder, if you have classified the ac­ ted States (or, if a mailing address is documentary evidence supporting the
count holder as a U.S. person in your ac­ inside the United States, the account account holder's claim of residence in
count information, if you have a current holder provides a reasonable explan­ the treaty country (and the documen­
mailing or current permanent residence ation in writing supporting the account tary evidence does not contain an ad­
address (whether or not on the documen­ holder’s foreign status), or dress outside the treaty country, a
tation) for the account holder in the United P.O. box, an in­care­of address, or
c. For a payment made with respect to
States, if the account holder notifies you of the address of a financial institution),
an offshore obligation, if you classify
a new residence or mailing address in the
the entity as a resident of the country b. You possess or obtain documentary
United States, or if you have a current tele­
where the obligation is maintained evidence that establishes that the ac­
phone number for the account holder in the
and you are required to report a pay­ count holder is an entity organized in
United States and no telephone number
ment made to the entity annually on a a treaty country, or
for the account holder outside the United
tax information statement filed with
States. c. You obtain a valid Form W­8 that con­
that country’s tax authority as part of
If the account holder is an individual and tains a permanent residence address
the resident reporting requirements,
you have, either on the documentary evi­ and a mailing address in the applica­
and that country has a tax information
dence or as part of your account informa­ ble treaty country.
exchange agreement or income tax
tion, an unambiguous place of birth for the
treaty in effect with the United States. 2. You have instructions to pay amounts out­
individual in the United States.
With respect to an offshore obligation, the 3. You have instructions to pay amounts to side the treaty country and the account
account holder has standing instructions an address or an account in the United holder gives you a reasonable explana­
directing you to pay amounts from the ac­ States and the account holder provides tion, in writing, establishing residence in
count to an address or account maintained you with a reasonable explanation, in writ­ the applicable treaty country or a valid
in the United States. ing, that supports the account holder's for­ beneficial owner withholding certificate
eign status or a valid beneficial owner that contains a permanent residence ad­
You may, however, rely on documentary evi­
withholding certificate claiming foreign sta­ dress and a mailing address in the appli­
dence as establishing an account holder's for­
tus. cable treaty country.
eign status if any of the following apply.
1. The mailing or residence address or sole 4. You have an unambiguous place of birth in
the United States for an individual account Indirect Account
telephone number is in the United States, Holders' Chapter 3 Status
you receive the documentary evidence holder and you possess or obtain docu­
from an individual, and mentary evidence demonstrating the indi­
A withholding agent that receives documenta­
vidual’s citizenship in a country other than
a. You possess or obtain additional tion from a payee through an NQI, a
the United States and a copy of the indi­
documentary evidence (that does not flow­through entity, or a U.S. branch of a foreign
vidual’s Certificate of Loss of Nationality of
contain a U.S. address) supporting bank or insurance company subject to U.S. or
the United States. Alternatively, you may
the claim of foreign status and a rea­ state regulatory supervision or a territory finan­
treat such an individual as a foreign per­
sonable explanation in writing sup­ cial institution (other than a U.S. branch treated
son if you obtain a valid beneficial owner
porting the account holder's foreign as a U.S. person) has reason to know that the
withholding certificate that establishes the
status, documentary evidence is unreliable or incorrect
individual’s foreign status, documentary
for purposes of a claim of foreign status or a
b. You obtain a Form W­8 that contains evidence evidencing citizenship in a coun­
treaty claim if a reasonably prudent person in
a permanent residence address and try other than the United States, and a rea­
the withholding agent's position would question
mailing address outside the United sonable explanation in writing of the indi­
the claims made. This standard requires, but is
States (or, if a mailing address is in­ vidual’s renunciation of U.S. citizenship
not limited to, compliance with the following
side the United States, the account (or, under an applicable IGA, the reason
rules.

Page 20 Publication 515 (2017)

Withholding statement. You must review the FFI, a deemed­compliant FFI, or other entity en­ uary 1, 2017, you must obtain the GIINs of both
withholding statement provided with Form titled to a reduced rate of withholding under the sponsored FFI or sponsored direct reporting
W­8IMY and may not rely on information in the chapter 4 is incorrect, you are considered to NFFE and its sponsoring entity. If you already
statement to the extent the information does not have knowledge that such a claim is incorrect have a withholding certificate on file from a
support the claims made for a payee. You may beginning 30 days after you receive the notice. sponsored FFI or sponsored direct reporting
not treat a payee as a foreign person if a U.S. NFFE that includes the GIIN of the sponsoring
address is provided for the payee. You may not GIIN Verification entity, you may obtain the GIIN of the spon­
treat a person as a resident of a country with sored FFI or sponsored direct reporting NFFE
which the United States has an income tax If you have received a Form W­8BEN­E from an by oral or written confirmation (including by
treaty if the address for the person is outside entity payee that is claiming chapter 4 status as e­mail). See Notice 2015­66, 2015­41 I.R.B.
the treaty country. a participating FFI or registered deemed­com­ 541, available at www.irs.gov/irb/2015­41_IRB/
You may, however, treat a payee as a for­ pliant FFI, you must obtain and verify the en­ ar09.html.
eign person and may treat a foreign person as a tity’s GIIN against the published IRS FFI list.
resident of a treaty country if the withholding The IRS FFI list can be found at www.irs.gov/ Sponsored, closely held investment vehi­
statement is accompanied by a valid withhold­ Businesses/Corporations/FFI­List­Resources­ cles. If you make a withholdable payment to a
ing certificate and documentary evidence or a Page. You will have reason to know that such certified deemed­compliant FFI that is a spon­
reasonable explanation is provided, by the non­ payee is not such a financial institution if the sored, closely held investment vehicle, you
qualified intermediary, flow­through entity, or payee's name (including a name reasonably must obtain a GIIN for the sponsoring entity and
U.S. branch supporting the payee’s foreign sta­ similar to the name the withholding agent has verify it against the published IRS FFI list.
tus or residency in a treaty country. on file for the payee) and GIIN do not appear on
the most recently published IRS FFI list within Reason To Know
Withholding certificate. If you receive a Form 90 days of the date that the claim is made.
W­8 for a payee in association with a Form In general, you have reason to know that a
W­8IMY, you must review each Form W­8 and If you receive a Form W­8BEN­E from an claim of chapter 4 status is unreliable or incor­
verify that the information is consistent with the entity payee and the form contains “Applied for” rect if your knowledge of relevant facts or state­
information on the withholding statement. If in the box for the GIIN, the payee must provide ments contained in the withholding certificate or
there is a discrepancy, you may rely on the you its GIIN within 90 days of providing the other documentation is such that a reasonably
Form W­8, if valid, and instruct the NQI, form. A Form W­8BEN­E from such payee that prudent person would question the claim being
flow­through entity, or U.S. branch to correct does not include a GIIN, or includes a GIIN that made. For an obligation other than a preexisting
the withholding statement, or, alternatively, you does not appear on the published IRS FFI list, obligation (i.e., an obligation other than an obli­
may apply the presumption rules, discussed will be invalid for chapter 4 purposes 90 days gation, including an account, held by an individ­
later in Presumption Rules, to the payee. after the date the form is provided. ual that is outstanding on June 30, 2014, or an
If you choose to rely on the withholding cer­ obligation, including an account, held by an en­
tificate, you must, in addition to instructing the The GIIN that you must confirm is the GIIN tity that is opened, executed, or issued before
NQI, flow­through entity, or U.S. branch to cor­ assigned to the FFI identifying its country of res­ January 1, 2015), you have reason to know that
rect the withholding statement, instruct the NQI, idence for tax purposes (or place of organiza­ a claim of chapter 4 status is unreliable or incor­
flow­through entity, or U.S. branch to confirm tion if the FFI has no country of residence), ex­ rect if any information contained in the account
that it does not know or have reason to know cept as otherwise provided. opening files or other customer account files, in­
that the withholding certificate is unreliable or cluding documentation collected for AML due
inaccurate. Branches and disregarded entities. If you diligence purposes, conflicts with the chapter 4
make a withholdable payment to a branch of, or status being claimed. You will not have reason
Documentary evidence. If you receive docu­ an entity that is disregarded as an entity sepa­ to know that a claim of chapter 4 status is unre­
mentary evidence for a payee in association rate from, a participating FFI or registered liable or incorrect based on documentation col­
with a Form W­8IMY, you must review the deemed­compliant FFI located outside of the lected for AML due diligence purposes until the
documentary evidence provided by the NQI, FFI's country of residence or organization, the date that is 30 days after the obligation is cre­
flow­through entity, or U.S. branch to determine GIIN you must verify is the GIIN assigned to the ated.
that there is no obvious indication that the FFI, identifying the country in which the branch
payee is a U.S. person subject to Form 1099 re­ or disregarded entity receiving the payment is If you have classified an entity as engaged
porting or that the documentary evidence does located. You must identify a GIIN associated in a particular type of business based on your
not establish the identity of the person who pro­ with a disregarded entity to the extent provided records, such as through the use of a standar­
vided the documentation (for example, the in the Instructions to Form W­8BEN­E. dized industry coding system, you have reason
documentary evidence does not appear to be to know that the chapter 4 status claimed by the
an identification document). Limited branches. You will have reason to entity is unreliable or incorrect if the entity’s
know that a withholdable payment is made to a claim conflicts with the withholding agent’s clas­
Standards of Knowledge limited branch (including a disregarded entity)
of a participating FFI or registered deemed­
sification of the entity’s business type.

for Purposes of Chapter 4 compliant FFI when you are directed to make Withholding Certificates
the payment to an address in a jurisdiction other
If you make a withholdable payment, you must than that of the participating FFI or registered In general, you have reason to know that a with­
withhold in accordance with the presumption deemed­ compliant FFI (or branch of, or disre­ holding certificate from a person is unreliable or
rules (discussed later) if you know or have rea­ garded entity wholly owned by, such FFI) that is incorrect with respect to claim of chapter 4 sta­
son to know that a withholding certificate or identified as the FFI (or branch of, or disregar­ tus if:
documentary evidence provided by the payee is ded entity wholly owned by, such FFI) that is The withholding certificate is incomplete
unreliable or incorrect to establish a payee’s supposed to receive the payment and for which with respect to any item on the certificate
chapter 4 status. If you rely on an agent to ob­ the FFI's GIIN is not confirmed as described in that is relevant to the claim made by the
tain documentation, you are considered to the preceding paragraphs. person;
know, or have reason to know, the facts that are
The withholding certificate contains any in­
within the knowledge of your agent for this pur­ Direct reporting NFFEs. If you make a with­ formation that is inconsistent with the per­
pose. holdable payment to a direct reporting NFFE, son’s claim;
you must obtain and verify the direct reporting You have other account information that is
Notification by the IRS NFFE’s GIIN against the published IRS FFI list. inconsistent with the person’s claim;
The withholding certificate lacks informa­
If you receive notification from the IRS that a Transitional rule for sponsoring entities. tion necessary to establish entitlement to
claim of status as a U.S. person, a participating For witholdable payments made on or after Jan­

Publication 515 (2017) Page 21

 an exemption from withholding for chap­ flow­through entity that is a QI, WP, or WT or a presumption rules, you are not liable for tax, in­
ter 4 purposes; or payee that is included in a chapter 4 withhold­ terest, and penalties even if the rate of withhold­
With respect to an alternative certification ing rate pool of U.S. payees. ing that should have been applied based on the
under an applicable IGA included with a payee's actual status is different from that pre­
withholding certificate, if you know or have Withholding statement. You must review sumed.
reason to know the certification is incor­ the withholding statement provided and may
rect. not rely on information in the statement to the The presumption rules apply to determine
extent the information does not support the the status of the person you pay as a U.S. or
claims made regarding the chapter 4 status of foreign person and other relevant characteris­
If you obtain a withholding certificate associ­
the payee. You may not treat a person as a for­ tics, such as whether the payee is a beneficial
ated with a withholdable payment to a partici­
eign person if a U.S. address is provided, un­ owner or intermediary, and whether the payee
pating FFI, a registered deemed­compliant FFI,
less the withholding statement is accompanied is an individual, corporation, partnership, or
a sponsoring entity, or a sponsored FFI, you do
by a valid withholding certificate and documen­ trust. In the case of a withholdable payment you
not need to apply the standards of knowledge
tary evidence establishing foreign status. make to an entity, you must apply the presump­
described earlier with respect to an account
tion rules for chapter 4 purposes to treat the en­
holder’s claim of foreign status if you have con­ Withholding certificate. You must review tity as a nonparticipating FFI when you cannot
firmed the FFI’s GIIN on the current published each withholding certificate, written statement reliably associate the payment with documenta­
IRS FFI list within 90 days of receipt of the with­ (as permitted for chapter 4 purposes with re­ tion permitted for chapter 4 purposes. You are
holding certificate. spect to certain payments to entities), or docu­ not permitted to apply a reduced rate of chap­
mentary evidence, and must verify that the in­ ter 3 withholding based on a payee's presumed
A withholding certificate used for chap­
formation is consistent with the information on status if documentation is required to establish
! ter 4 purposes must also include the in­
CAUTION formation required for chapter 3 purpo­
the withholding statement. If there is a discrep­ a reduced rate of withholding. For example, if
ancy, you may rely on the documentation provi­ the payee of interest is presumed to be a for­
ses (i.e., the entity’s tax classification) with
ded such documentation is valid and the inter­ eign person, you may not apply the portfolio in­
regard to a payment that is a reportable amount
mediary or flow­through entity does not indicate terest exception or a reduced rate of withhold­
under Treasury regulations section 1.1441­1(e)
that the documentation is unreliable or incor­ ing under a tax treaty since both exceptions
(3)(vi).
rect, or, alternatively, you may apply the pre­ require documentation.
sumption rules. If you choose to rely on the doc­
Documentary Evidence umentation, you must instruct the intermediary If you rely on your actual knowledge about a
or flow­through entity to correct the withholding payee's status and withhold an amount less
You have reason to know that documentary evi­ statement and confirm that the intermediary or than that required under the presumption rules
dence provided by a person is unreliable or in­ flow­through entity does not know or have rea­ or do not report a payment that is subject to re­
correct with respect to a claim of chapter 4 sta­ son to know that the documentation is unrelia­ porting under the presumption rules, you may
tus if: ble or incorrect. See Treasury regulations sec­ be liable for tax, interest, and penalties. You
The documentary evidence does not rea­ tion 1.1471­3(d) for when a written statement is should, however, rely on your actual knowledge
sonably establish the identity of the person permitted for chapter 4 purposes. if doing so results in withholding an amount
presenting the documentary evidence; greater than would apply under the presumption
The documentary evidence contains infor­ Documentation from participating FFIs and rules or in reporting an amount that would not
mation that is inconsistent with the per­ registered deemed­compliant FFIs. If you be subject to reporting under the presumption
son’s claim as to its chapter 4 status; receive documentation for a payee of a with­ rules.
You have other account information that is holdable payment through a participating FFI or
registered deemed­compliant FFI that is an in­ In the case of a participating FFI or regis­
inconsistent with the person’s chapter 4
termediary or flow­through entity receiving the tered deemed­compliant FFI that cannot report
status; or
payment, you may rely on the chapter 4 status with respect to an individual account holder, the
The documentary evidence lacks informa­
provided in the withholding statement unless FFI must classify the account holder under the
tion necessary to establish the person’s
you have information that conflicts with the requirements (as applicable) of the FFI agree­
chapter 4 status.
chapter 4 status provided. If underlying docu­ ment, Treasury regulations section 1.1471­5(f),
For standards of knowledge applicable to spe­ or an applicable IGA. Whether withholding ap­
mentation is provided for the payee and infor­
cific types of documentary evidence, see Treas­ plies to payments made to such account hold­
mation in the documentation or in your records
ury regulations section 1.1471­3. ers classified as recalcitrant account holders
conflicts with the chapter 4 status claimed, you
have reason to know that the chapter 4 status (including payments to intermediaries or
Payee Documentation claimed is unreliable or incorrect. However, you flow­through entities allocating payments to
from Intermediaries are not required to verify the information con­ such account holders on an applicable with­
or Flow­Through Entities tained in the documentation that is not facially holding statement) differs under these require­
incorrect, and you are generally not required to ments.
obtain supporting documentation for the payee. The presumption rules, in the absence of
In general. If you receive documentation for a
Preexisting obligation of entities. If you documentation, for the subject matter are dis­
payee of a withholdable payment through one
make a withholdable payment with respect to a cussed in the regulation section indicated on
or more intermediaries or flow­through entities,
preexisting obligation to an entity, the scope of Chart A.
you must, in addition to determining each such
entity’s chapter 4 status when required for review is limited with respect to the time in
chapter 4 purposes, review all documentation which you must determine the entity’s chapter 4
obtained with respect to the payee. Under cer­ status. For more information, see Treasury reg­
tain circumstances, you may rely on a withhold­ ulations section 1.1471­3(e)(4)(vii) or, if you are
ing certificate that has been collected from the a reporting Model 1 FFI or a reporting Model 2
payee through an electronic system maintained FFI, the requirements of the applicable IGA.
by an account holder that is an NQI, NWP, or
NWT. See Notice 2016­08, 2016­6 I.R.B. 304, Presumption Rules
available at www.irs.gov/irb/2016­06_IRB/
ar09.html, for the conditions for relying on such If you cannot reliably associate a payment with
withholding certificates. When withholding un­ valid documentation, you must apply certain
der chapter 4 is not applied based on the chap­ presumption rules or you may be liable for tax,
ter 4 status of an intermediary or flow­through interest, and penalties. If you comply with the
entity, you are not required to obtain documen­
tation for a payee through an intermediary or

Page 22 Publication 515 (2017)

Chart A. Presumption Rules in the Amounts Subject to U.S. source FDAP income for purposes of
Absence of Documentation Chapter 3 Withholding chapter 4 is similar to U.S. source FDAP in­
come for purposes of chapter 3, but with the
For the See regulations modifications described in Fixed or Determina­
A payment is subject to chapter 3 withholding if ble Annual or Periodical Income (FDAP), later.
presumption section: it is from sources within the United States, and it
rules related to: is either: Amounts not subject to withholding under
1.1441­1(b)(3); Fixed or determinable annual or periodical chapter 4. The following amounts are not sub­
1.6049­5(d); (FDAP) income, or ject to withholding under chapter 4.
1.1471­3(f) Certain gains from the disposition of tim­ Interest or original issue discount from a
ber, coal, and iron ore, or from the sale or short­term obligation.
Payee's status (chapter 4 payees)
exchange of patents, copyrights, and simi­ Payments made under a grandfathered
Effectively lar intangible property. obligation (e.g., obligations outstanding on
connected income 1.1441­4(a)(2) July 1, 2014).
In addition, a payment is subject to chap­
Partnership and its 1.1441­5(d); ter 3 withholding if withholding is specifically re­
partners 1.1446­1(c)(3) quired, even though it may not constitute U.S. Source of Income
Estate or trust and source income or FDAP income. For example,
corporate distributions may be subject to chap­ In most cases, income is from U.S. sources if it
its beneficiaries or is paid by domestic corporations, U.S. citizens
ter 3 withholding even though a part of the dis­
owner 1.1441­5(e)(6) tribution may be a return of capital or capital or resident aliens, or entities formed under the
Foreign gain that is not FDAP income. laws of the United States or a state. Income is
tax­exempt also from U.S. sources if the property that pro­
organizations Amounts not subject to chapter 3 withhold­ duces the income is located in the United
ing. The following amounts are not subject to States or the services for which the income is
(including private
chapter 3 withholding. paid were performed in the United States or the
foundations) 1.1441­9(b)(3) Portfolio interest paid on obligations that income is a dividend equivalent. A payment is
meet certain requirements. See Interest, treated as being from sources within the United
later. States if the source of the payment cannot be
Presumption Rules for Chapter 4 Bank deposit interest that is not effectively determined at the time of payment, such as
connected with the conduct of a U.S. trade fees for personal services paid before the serv­
If you determine that you are making a withhold­ or business. See Interest, later. ices have been performed. Other source rules
able payment to an entity and cannot reliably Original issue discount on certain short­ are summarized in Chart B and explained in de­
associate the payment with a valid Form W­8 or term obligations. See Original issue dis­ tail in the separate discussions under Withhold­
other documentation that you are permitted to count, later. ing on Specific Income, later.
rely upon and that is sufficient to determine the Nonbusiness gambling income of a non­
chapter 4 status of the entity, you are required resident alien playing blackjack, baccarat, In most cases, interest on an obligation of a
to treat the entity payee as a nonparticipating craps, roulette, or big­6 wheel in the United foreign corporation or foreign partnership is for­
FFI such that withholding applies. For purposes States. See Gambling winnings, later. eign­source income. If the entity is engaged in a
of determining whether the payment is made to Amounts paid as part of the purchase price trade or business in the United States during its
an individual or an entity, or to a U.S. person or of an obligation sold between interest pay­ tax year, interest paid by such entity is treated
a foreign person, if you cannot reliably asso­ ment dates. See Interest, later. as from U.S. sources only if the interest is paid
ciate a payment with a valid Form W­8 or other Original issue discount paid on the sale of by a U.S. trade or business conducted by the
documentation that you are permitted to rely an obligation other than a redemption. See entity or is allocable to income that is treated as
upon and from which you are able to determine Original issue discount, later. effectively connected with the conduct of a U.S.
the payee’s status as an individual or entity, or Insurance premiums paid on a contract is­ trade or business. This applies to a foreign part­
U.S. or foreign status, you must apply the pre­ sued by a foreign insurer. nership only if it is predominantly engaged in
sumption rules of Treasury regulations section the active conduct of a trade or business out­
1.1441­1(b)(3)(ii) to determine the payee’s sta­ side the United States.
tus as an individual or entity and Treasury regu­ Amounts Subject to
lations section 1.1441­1(b)(3)(iii) to determine Chapter 4 Withholding Guarantee income. Certain amounts paid, di­
the payee’s U.S. or foreign status. rectly or indirectly, for the provision of a guaran­
Beginning on July 1, 2014, a withholding agent tee of indebtedness issued after September 27,
If you are making a withholdable payment to must withhold on a payment of U.S. source 2010, are from U.S. sources. The amounts
joint payees and cannot reliably associate the FDAP income that is a withholdable payment to must be paid by one of the following:
payment with valid documentation from each which an exception does not apply under chap­ 1. A noncorporate U.S. resident or a U.S.
payee and each of the payees appears to be an ter 4. corporation for the provision of a guaran­
individual, the payment is presumed made to an tee of the resident or corporation, or
unidentified U.S. person. If any of the joint pay­ Withholdable payment means:
ees does not appear, by its name or other infor­ A payment of U.S. source FDAP income, 2. Any foreign person for the provision of a
mation in its account file, to be an individual, and guarantee if the payment of income is ef­
then the entire payment is treated as made to a For sales or other dispositions occurring fectively connected, or treated as effec­
nonparticipating FFI. However, if you receive after December 31, 2018, gross proceeds tively connected, with the conduct of a
from one of the joint payees a Form W­9, the from the sale or other disposition of prop­ U.S. trade or business.
payment shall be treated as made to that erty of a type that can produce interest or
payee. dividends or dividends that are U.S. source Personal service income (for purposes of
FDAP income. chapter 3 withholding). If the income is for
personal services performed in the United
Income Subject U.S. source FDAP income means: States, it is from U.S. sources. The place where
the services are performed determines the
U.S. source FDAP income under chap­
to Withholding ter 3, as modified by chapter 4, and source of the income, regardless of where the
Certain gains from the disposition of tim­ contract was made, the place of payment, or
This section explains how to determine if a pay­ ber, coal, and iron ore, or from the sale or the residence of the payer.
ment is subject to chapter 3 withholding or is a exchange of patents, copyrights, and simi­ However, under certain circumstances, pay­
withholdable payment. lar intangible property. ment for personal services performed in the

Publication 515 (2017) Page 23

United States is not considered income from time. If there is no one place where most of the Activities outside the United States. A
sources within the United States. For informa­ work time is spent, the main job location is the scholarship, fellowship, grant, targeted grant, or
tion on this exception, see Pay for Personal place where the work is centered, such as an achievement award received by a nonresi­
Services Performed, later. where the employee reports for work or is other­ dent alien for activities conducted outside the
If the income is for personal services per­ wise required to base his or her work. United States is treated as foreign source in­
formed partly in the United States and partly An employee can use an alternative basis come.
outside the United States, you must make an based on facts and circumstances, rather than
accurate allocation of income for services per­ the time or geographical basis. The employee, Pension payments. The source of pension
formed in the United States based on the facts not the employer, must demonstrate that the al­ payments is determined by the part of the distri­
and circumstances. In most cases, you make ternative basis more properly determines the bution that constitutes the compensation ele­
this allocation on a time basis. That is, U.S. source of the pay or fringe benefits. ment (employer contributions) and the part that
source income is the amount that results from constitutes the earnings element (the invest­
Territorial limits. Wages received for serv­ ment income).
multiplying the total amount of pay by the fol­
ices rendered inside the territorial limits of the The compensation element is sourced the
lowing fraction:
United States and wages of an alien seaman same as compensation from the performance of
earned on a voyage along the coast of the Uni­ personal services. The part attributable to serv­
Number of days services are performed in the ted States are regarded as from sources in the ices performed in the United States is U.S.
United States United States. Wages or salaries for personal source income, and the part attributable to serv­
Total number of days of service for which services performed in a mine or on an oil or gas ices performed outside the United States is for­
compensation is paid well located or being developed on the conti­ eign source income.
nental shelf of the United States are treated as
Employer contributions to a defined benefit
from sources in the United States.
Multi­year compensation. Generally, the plan covering more than one individual are not
Income from the performance of services di­
source of multi­year compensation is deter­ made for the benefit of a specific participant,
rectly related to the use of a vessel or aircraft is
mined on a time basis over the period to which but are made based on the total liabilities to all
treated as derived entirely from sources in the
the compensation is attributable. Multi­year participants. All funds held under the plan are
United States if the use begins and ends in the
compensation is compensation that is included available to provide benefits to any participant.
United States. This income is subject to with­
in the taxable income of a recipient in one tax If the payment is from such a plan, you can use
holding if it is not effectively connected with a
year but that is attributable to a period that in­ the method in Revenue Procedure 2004­37 to
U.S. trade or business. If the use either begins
cludes two or more tax years. The determina­ allocate the payment to sources in and out of
or ends in the United States, see Transportation
tion of the period to which the compensation is the United States. Revenue Procedure
income, later.
attributable, for purposes of determining its 2004­37, 2004­26 I.R.B.1099, is available at
source, is based on the facts and circumstan­ Crew members. Income from the perform­ www.irs.gov/irb/2004­26_IRB/ar08.html.
ces of each case. For example, an amount of ance of services by a nonresident alien in con­ The earnings part of a pension payment is
compensation that specifically relates to a pe­ nection with the individual's temporary pres­ U.S. source income if the trust is a U.S. trust.
riod of time that includes several calendar years ence in the United States as a regular member
is attributable to the entire multi­year period. of the crew of a foreign vessel engaged in trans­ Chart B. Summary of Source Rules
Where determining the source of multi­level portation between the United States and a for­ for FDAP Income
compensation on a time basis is appropriate, eign country or a U.S. possession is not income
the amount of compensation treated as from from U.S. sources. IF you have: THEN the source of that
income is determined by:
U.S. sources is figured by multiplying the total
multi­year compensation by a fraction. The nu­ Multi­level marketing. Certain companies Pay for personal services Where the services are
merator of the fraction is the number of days (or sell products through a multi­level marketing ar­ performed
unit of time less than a day, if appropriate) that rangement, such that an upper­tier distributor,
Dividends The type of corporation
labor or personal services were performed in who has sponsored a lower­tier distributor, is (U.S. or foreign)
the United States in connection with the project. entitled to a payment from the company based
Interest The residence of the payer
The denominator of the fraction is the total num­ on certain activities of that lower­tier distributor.
ber of days (or unit of time less than a day, if ap­ Generally, depending on the facts, payments Rents Where the property is
from such multi­level marketing companies to located
propriate) that labor or personal services were
performed in connection with the project. independent (non­employee) distributors (up­ Royalties—Patents,
per­tier distributors) that are based on the sales copyrights, etc. Where the property is used
Employees. If the services are performed or purchases of persons whom they have spon­ Royalties—Natural Where the property is
partly in the United States and partly outside the sored (lower­tier distributors) constitute income resources located
United States by an employee, the allocation of for the performance of personal services in re­ Pensions: Distributions Where the services were
pay, other than certain fringe benefits, is deter­ cruiting, training, and supporting the lower­tier attributable to performed while a
mined on a time basis. The following fringe ben­ distributors. The source of such income is gen­ contributions nonresident alien
efits are sourced on a geographical basis as erally based on where the services of the up­
Pensions: Investment
shown in the following list. per­tier distributor are performed, and may, de­ earnings on contributions The location of pension trust
Housing – employee's main job location. pending on the facts, be considered multi­year
Scholarships and In most cases, the
Education – employee's main job location. compensation, with the source of income deter­
fellowship grants residence of payer
Local transportation – employee's main job mined over the period to which such compen­
location. sation is attributable. Guarantee of The residence of the debtor
Tax reimbursement – jurisdiction imposing indebtedness or whether the payment is
effectively connected with a
tax. Scholarships, fellowships, and grants.
U.S. trade or business
Hazardous or hardship duty pay – location Scholarships, fellowships, and grants are
of pay zone. sourced according to the residence of the
Moving expense reimbursement – employ­
ee's new main job location.
payer. Those made by entities created or domi­
ciled in the United States are generally treated
Fixed or Determinable
as income from sources within the United Annual or Periodical
For information on what is included in these
benefits, see Regulations section 1.861­4(b)(2)
States. However, see Activities outside the Uni­ Income (FDAP)
ted States, next. Those made by entities cre­
(ii)(D).
ated or domiciled in a foreign country are FDAP income is all income except:
An employee's main job location (principal
treated as income from foreign sources. Gains from the sale of property (including
place of work) is usually the place where the
employee spends most of his or her working market discount and option premiums but
not including original issue discount), and

Page 24 Publication 515 (2017)

 Items of income excluded from gross in­ ble payment. This includes income derived un­ effectively connected with a U.S. trade or busi­
come without regard to U.S. or foreign sta­ der a life insurance contract issued by a foreign ness include:
tus of the owner of the income, such as branch of a U.S. life insurance company. The Whether the income is from assets used
tax­exempt municipal bond interest and proceeds are income to the extent they exceed in, or held for use in, the conduct of that
qualified scholarship income. the cost of the policy. trade or business; or
However, certain payments received under Whether the activities of that trade or busi­
The following items are examples of FDAP ness were a material factor in the realiza­
a life insurance contract on the life of a termi­
income. tion of the income.
nally or chronically ill individual before death
Compensation for personal services.
(accelerated death benefits) may not be subject
Dividends and dividend equivalent pay­ Income from securities. There is a special
to tax. This also applies to certain payments re­
ments. rule determining whether income from securi­
ceived for the sale or assignment of any part of
Interest. ties is effectively connected with the active con­
the death benefit under contract to a viatical
Original issue discount. duct of a U.S. banking, financing, or similar
settlement provider. See Publication 525, Taxa­
REMIC excess inclusion income. business.
ble and Nontaxable Income, for more informa­
Pensions and annuities.
tion. If the foreign person's U.S. office actively
Alimony.
and materially participates in soliciting, negoti­
Real property income, such as rents, other
Racing purses (for purposes of chapter 3 ating, or performing other activities required to
than gains from the sale of real property.
withholding). Racing purses are FDAP in­ arrange the acquisition of securities, the U.S.
Royalties.
come and racetrack operators must withhold source interest or dividend income from the se­
Taxable scholarships and fellowship
30% on any purse paid to a nonresident alien curities, gain or loss from their sale or ex­
grants.
racehorse owner in the absence of definite in­ change, income or gain economically equiva­
Other taxable grants, prizes, and awards.
formation contained in a statement filed to­ lent to such amounts, or amounts received for
A sales commission paid or credited
gether with a Form W­8 that the owner has not providing a guarantee of indebtedness, is attrib­
monthly.
raced, or does not intend to enter, a horse in utable to the U.S. office and is effectively con­
A commission paid for a single transaction.
another race in the United States during the tax nected income.
The distributable net income of an estate
year. If available information indicates that the
or trust that is FDAP income and must be Withholding exemption. In most cases, you
racehorse owner has raced a horse in another
distributed currently, or has been paid or do not need to withhold tax on income for pur­
race in the United States during the tax year,
credited during the tax year. poses of chapter 3 or 4 if you receive a Form
then the statement and Form W­8 filed for that
FDAP income distributed by a partnership W­8ECI on which a foreign payee represents
year are ineffective. The owner may be exempt
that, or such an amount that, although not that:
from withholding of tax at 30% on the purses if
actually distributed, is includible in the The foreign payee is the beneficial owner
the owner gives you Form W­8ECI, which pro­
gross income of a foreign partner. of the income,
vides that the income is effectively connected
Taxes, mortgage interest, or insurance The income is effectively connected with
with the conduct of a U.S. trade or business and
premiums paid to or for the account of, a the conduct of a trade or business in the
that the income is includible in the owner's
nonresident alien landlord by a tenant un­ United States, and
gross income.
der the terms of a lease. For purposes of chapter 3 withholding, the
Publication rights. Covenant not to compete. Payment received income is includible in the payee's gross
Prizes awarded to nonresident alien artists for a promise not to compete is generally FDAP income.
for pictures exhibited in the United States. income. Its source is the place where the prom­
Purses paid to nonresident alien boxers for This withholding exemption applies to in­
isor forfeited his or her right to act. Amounts
prize fights in the United States. come for services performed by a foreign part­
paid to a nonresident alien for his or her prom­
Prizes awarded to nonresident alien pro­ nership or foreign corporation (unless item (4)
ise not to compete in the United States are sub­
fessional golfers in golfing tournaments in below applies to the corporation). The exemp­
ject to chapter 3 withholding and are withholda­
the United States. tion does not apply, however, to:
ble payments.
Payments for the following purposes are ex­ 1. Pay for personal services performed by an
amples of payments that are not withholdable individual (for purposes of chapter 3),
payments. Withholding on 2. Effectively connected taxable income of a
Services (including wages and other forms
of employee compensation (such as stock Specific Income partnership that is allocable to its foreign
partners (see Partnership Withholding on
options)). Effectively Connected Income, later),
The use of property. Different kinds of income are subject to different
Office and equipment leases. withholding requirements. 3. Income from the disposition of a U.S. real
Software licenses. property interest (see U.S. Real Property
Interest, later), or
Transportation. Effectively
Freight.
Gambling winnings.
Connected Income 4. Payments to a foreign corporation for per­
sonal services if all of the following apply:
Awards, prizes and scholarships.
In most cases, when a foreign person engages a. The foreign corporation otherwise
Interest on outstanding accounts payable
in a trade or business in the United States, all qualifies as a personal holding com­
arising from the acquisition of goods or
income from sources in the United States con­ pany for income tax purposes,
services.
nected with the conduct of that trade or busi­
ness is considered effectively connected with a b. The foreign corporation receives
Installment payments. Income can be FDAP amounts under a contract for personal
U.S. business. FDAP income may or may not
income whether it is paid in a series of repeated services of an individual whom the
be effectively connected with a U.S. business.
payments or in a single lump sum. For example, corporation has no right to designate,
For example, effectively connected income in­
$5,000 in royalty income would be FDAP in­ and
cludes rents from real property if the alien choo­
come whether paid in 10 payments of $500
ses to treat that income as effectively connec­ c. 25% or more in value of the outstand­
each or in one payment of $5,000.
ted with a U.S. trade or business. ing stock of the foreign corporation at
Insurance proceeds. Income derived by an The factors to be considered in establishing some time during the tax year is
insured nonresident alien from U.S. sources whether FDAP income and similar amounts are owned, directly or indirectly, by or for
upon the surrender of, or at the maturity of, a life an individual who has performed, is to
insurance policy, is FDAP income and is sub­ perform, or may be designated as the
ject to chapter 3 withholding and is a withholda­

Publication 515 (2017) Page 25

 one to perform, the services called for section correspond to the income codes for definition of withholdable payments in Treasury
under the contract. 2017 used on Form 1042­S (discussed later). regulations section 1.1473­1(a).

Withholding exemption for purposes of For purposes of chapter 3, you must with­ Original issue discount (Income Code 30).
chapter 4. Income effectively connected with hold tax at the statutory rates shown in Chart C Original issue discount paid on the redemption
the conduct of a trade or business in the United unless a reduced rate or exemption under a tax of an obligation is subject to chapter 3 withhold­
States is not a withholdable payment under treaty applies. For U.S. source gross income ing and is a withholdable payment (except
chapter 4 and thus is not subject to withholding that is not effectively connected with a U.S. when paid with respect to a grandfathered obli­
for chapter 4 purposes. You do not need to trade or business, the rate is usually 30%. In gation). Original issue discount paid as part of
withhold tax under chapter 4 if you receive a most cases, you must withhold the tax at the the purchase price of an obligation sold or ex­
Form W­8ECI on which a foreign payee makes time you pay the income to the foreign person. changed, other than in a redemption, is not sub­
the representations described in Withholding See When to withhold, earlier. ject to chapter 3 withholding unless the pur­
exemptions, earlier. chase is part of a plan the principal purpose of
Interest which is to avoid tax and the withholding agent
Notional principal contract income. Certain has actual knowledge or reason to know of the
payments attributable to a notional principal Interest from U.S. sources paid to foreign pay­ plan. However, such original issue discount is a
contract are not subject to withholding regard­ ees is subject to chapter 3 withholding and is a withholdable payment (except when paid with
less of whether a Form W­8ECI is provided. withholdable payment except when the interest respect to a grandfathered obligation). With­
However, specified notional principal contract is paid with respect to a grandfathered obliga­ holding is required by a person other than the
income (described later under Dividend equiva­ tion or another exemption under chapter 4 ap­ issuer of an obligation (or the issuer's agent).
lent payments) is subject to withholding. plies. When making a payment on an interest The original issue discount that is subject to
Income from a notional principal contract is bearing obligation, you must withhold on the chapter 3 withholding and is a withholdable
subject to reporting on Form 1042­S if it is ef­ gross amount of stated interest payable on the payment (except when paid with respect to a
fectively connected with the conduct of a trade interest payment date, even if the payment or a grandfathered obligation) is the taxable amount
or business in the United States. You must treat part of the payment may be a return of capital of original issue discount. The taxable amount
the income as effectively connected with a U.S. rather than interest. for both chapters 3 and 4 withholding purposes
trade or business if you pay the income to, or to is the original issue discount that accrued while
the account of, a qualified business unit (a the obligation was held by the foreign beneficial
A substitute interest payment made to the
branch) of a foreign person located in the Uni­ owner up to the time the obligation was sold or
transferor of a security in a securities lending
ted States or a qualified business unit located exchanged or a payment was made, reduced
transaction or a sale­repurchase transaction is
outside the United States and you know, or by any original issue discount that was previ­
treated the same as the interest on the transfer­
have reason to know, the income is effectively ously taxed. If a payment was made, the tax
red security. Use Income Code 33 to report
connected with the conduct of a U.S. trade or due on the original issue discount may not ex­
these substitute payments.
business. You do not need to treat notional prin­ ceed the payment reduced by the tax imposed
cipal contract income as effectively connected if on the part of the payment that is qualified sta­
Interest paid by U.S. obligors—general (In­
you receive a Form W­8BEN­E that represents ted interest.
come Code 1). With specific exceptions, such
that the income is not effectively connected with If you cannot determine the taxable amount,
as portfolio interest (for purposes of chapter 3),
the conduct of a U.S. trade or business or if the you must withhold on the entire amount of origi­
you must withhold on interest paid or credited
payee provides a representation in a master nal issue discount accrued from the date of is­
on bonds, debentures, notes, open account in­
agreement or in the confirmation on the particu­ sue until the date of redemption (or sale or ex­
debtedness, governmental obligations, certain
lar notional principal contract transaction that change, if subject to chapter 3 withholding or a
deferred payment arrangements (as provided in
the payee is a U.S. person or a non­U.S. branch withholdable payment) determined on the basis
section 483 of the Internal Revenue Code) or
of a foreign person. of the most recently published Publication
other evidences of indebtedness of U.S. obli­
gors. U.S. obligors include the U.S. Govern­ 1212, Guide to Original Issue Discount (OID) In­
Income paid to U.S. branch of foreign bank struments.
ment or its agencies or instrumentalities, any
or insurance company. A payment to a U.S. For more information on original issue dis­
U.S. citizen or resident, any U.S. corporation,
branch of a foreign bank or a foreign insurance count, see Publication 550, Investment Income
and any U.S. partnership.
company that is subject to U.S. regulation by and Expenses.
If, in a sale of a corporation's property, pay­
the Federal Reserve or state insurance authori­
ment of the bonds or other obligations of the
ties is presumed to be effectively connected
corporation is assumed by the buyer, that
with the conduct of a trade or business in the
buyer, whether an individual, partnership, or
United States if you have an EIN for the branch,
corporation, must deduct and withhold the
unless the branch provides a Form W­8BEN­E
taxes that would be required to be withheld by
or Form W­8IMY for the income. If a U.S.
the selling corporation as if there had been no
branch of a foreign bank or insurance company
sale or transfer. Also, if interest coupons are in
receives income that the payer did not withhold
default, the tax must be withheld on the gross
upon because of the presumption that the in­
amount of interest whether or not the payment
come was effectively connected with the U.S.
is a return of capital or the payment of income.
branch's trade or business, the U.S. branch is
required to withhold on the income if it is in fact A resident alien paying interest on a margin
not effectively connected with the conduct of its account maintained with a foreign brokerage
trade or business in the United States. With­ firm must withhold from the interest whether the
holding is required whether the payment was interest is paid directly or constructively.
collected on behalf of other persons or on be­ Interest on bonds of a U.S. corporation paid
half of another branch of the same entity. to a foreign corporation not engaged in a trade
or business in the United States is subject to
withholding even if the interest is guaranteed by
Income Not a foreign corporation that made payment out­
Effectively Connected side the United States.
Domestic corporations must withhold on in­
This section discusses the specific types of in­ terest credited to foreign subsidiaries or foreign
come that are subject to chapter 3 withholding parents.
and where withholding under chapter 4 is re­ For withholding under chapter 4 on the inter­
quired. The income codes contained in this est payments described in this section, see the

Page 26 Publication 515 (2017)

Chart C. Withholding Tax Rates issued after July 18, 1984, and otherwise sub­ and (2) beneficial interest in the underlying obli­
for Purposes of Chapter 3 ject to chapter 3 withholding. gation are transferrable only through a book en­
try system maintained by the clearing organiza­
(Note. You must withhold tax at the following Note. The rules for determining whether in­ tion or its agent.
rates on payments of income unless a reduced terest is portfolio interest changed for obliga­ These bonds are considered to be in regis­
rate or exemption is authorized under a tax tions issued after March 18, 2012. Before tered form if the holder may only obtain a physi­
treaty. The President may apply higher tax rates March 19, 2012, portfolio interest included inter­ cal certificate in bearer form when: (1) the clear­
on income paid to residents or corporations of est on certain registered and nonregistered ing organization that maintains the book­entry
foreign countries that impose burdensome or (bearer) bonds if the obligations meet the re­ system goes out of business without a succes­
discriminatory taxes on U.S. persons.) quirements described below. sor; (2) the issuer defaults; or (3) definitive se­
IF you paid the following type THEN you For obligations issued after March 18, 2012, curities are issued at the issuer’s request upon
of income: generally must portfolio interest does not include interest paid a change in tax law adverse to the issuer. See
withhold at the on debt that is not in registered form, except for Notice 2012­20 for more information on regis­
following rate: interest paid on foreign­targeted registered obli­ tered form requirements.
Taxable part of U.S. scholarship or gations issued before January 1, 2016, as de­
fellowship grant paid to holder of scribed in Foreign­targeted registered obliga­ Foreign­targeted registered obligations.
“F,” “J,” “M,” or “Q” visa (see tions, later. A registered bond issued after March 18, 2012,
Scholarships and Fellowship and before January 1, 2016, will also be consid­
Grants, later) 14% Obligations in registered form. Portfolio ered to be in registered form if it is targeted to
Gross investment income from
interest includes interest paid on an obligation foreign markets, and portfolio interest treatment
interest, dividends, rents, and that is in registered form, and for which you may apply even when you do not receive docu­
royalties paid to a foreign private have received documentation that the beneficial mentation regarding the beneficial owner of the
foundation 4% owner of the obligation is not a United States bond.
Pensions—part paid for personal Graduated rates in person. If the registered obligation is not targeted to
services (see Pensions, Annuities, Circular A or Generally, an obligation is in registered form foreign markets, you must receive documenta­
and Alimony, later) Circular E if: (i) the obligation is registered as to both prin­ tion on which you may rely to treat the payee as
Wages paid to a nonresident alien Graduated rates in
cipal and any stated interest with the issuer (or a foreign person that is the beneficial owner of
employee (see Pay for Personal Circular A or its agent) and any transfer of the obligation may the interest. A registered obligation is targeted
Services Performed, later) Circular E be effected only by surrender of the old obliga­ to foreign markets if it is sold (or resold in con­
tion and reissuance to the new holder; (ii) the nection with its original issuance) only to foreign
Each foreign partner's share of 39.6% for
effectively connected income of noncorporate right to principal and stated interest with respect persons or to foreign branches of U. S. financial
the partnership (see Partnership partners; to the obligation may be transferred only institutions in accordance with procedures simi­
Withholding on Effectively 35% for corporate through a book entry system maintained by the lar to those provided under section 1.163­5(c)
Connected Income, later) partners issuer or its agent; or (iii) the obligation is regis­ (2)(i) of the regulations. However, the proce­
Distributions of effectively 39.6% for tered as to both principal and stated interest dure that requires the obligation to be offered
connected income to foreign noncorporate with the issuer or its agent and can be transfer­ for sale (or resale) only outside the United
partners by publicly traded partners; red both by surrender and reissuance and States does not apply if the registered obliga­
partnerships (see Publicly Traded 35% for corporate through a book entry system. tion is offered for sale through a public auction.
Partnerships, later) partners An obligation that would otherwise be con­ Also, the procedure that requires the obligation
Dispositions of U.S. real property 15% (10% for sidered to be in registered form is not consid­ to be delivered outside the United States does
interests (see U.S. Real Property dispositions before ered to be in registered form as of a particular not apply if the obligation is considered regis­
Interest, later) February 17, 2016)* time if it can be converted at any time in the fu­ tered because it may be transferred only
Dividends paid to Puerto Rico ture into an obligation that is not in registered through a book­entry system and the obligation
corporation 10% form, except as otherwise provided in Notice is offered for sale through a public auction. The
All other income subject to 2013­43, 2013­31 I.R.B. 113, as described in documentation needed depends on whether
withholding 30% the following section. the interest is paid to a financial institution, a
member of a clearing organization, or to some
Dematerialized book­entry systems and other foreign person. See Notice 2012­20 and
*35% in the case of certain distributions by corporations, effectively immobilized obligations. An ob­
partnerships, trusts, or estates. Treasury regulations section 1.871­14(e) for
ligation will be considered to be in registered more information on foreign­targeted registered
form if it is issued through either a dematerial­ obligations.
ized book entry system maintained by a clear­
Reduced Rates of ing organization (or agent thereof) or a clearing Obligations not in registered form and
Withholding on Interest system in which the obligation (including a obligations issued before March 19, 2012.
global obligation in bearer form) is effectively For obligations issued before March 19, 2012,
Notwithstanding the exception from withholding immobilized. See Notice 2012­20, 2012­13 interest on an obligation that is not in registered
under chapter 3 on interest described under this I.R.B. 574, amplified by Notice 2013­43, form (bearer obligation) is portfolio interest if the
heading, withholding may still apply under 2013­31 I.R.B. 113. obligation is foreign­targeted. A bearer obliga­
chapter 4 when the payment is a withholdable Under dematerialized book­entry systems, tion is foreign­targeted if:
payment and an exception from withholding un­ bonds are required to be represented only by There are arrangements to ensure that the
der chapter 4 does not apply. book entries, and no physical certificates are is­ obligation will be sold, or resold in connec­
sued or transferred. The bonds are transferred tion with the original issue, only to a person
Certain interest is subject to a reduced rate only by book entries. who is not a United States person,
of, or exemption from, withholding. An obligation will be considered to be effec­ Interest on the obligation is payable only
tively immobilized if (1) it is represented by one outside the United States and its posses­
Portfolio interest exempt from chapter 3 or more global securities in physical form that sions, and
withholding. Interest and original issue dis­ are issued to and held by a clearing organiza­ The face of the obligation contains a state­
count that qualifies as portfolio interest is ex­ tion (or by a custodian or depository acting as ment that any United States person who
empt from chapter 3 withholding. However, an agent of the clearing organization) for the holds the obligation will be subject to limits
these amounts are not exempt from withholding benefit of purchasers and under arrangements under the United States income tax laws.
under chapter 4 when the interest is a withhold­ that prohibit transfer except to a successor
able payment, unless an exception from chap­ Documentation is not required for interest on
clearing organization subject to the same terms,
ter 4 withholding applies. To qualify as portfolio bearer obligations to qualify as portfolio interest.
interest, the interest must be paid on obligations

Publication 515 (2017) Page 27

In some cases, however, you may need docu­ REMIC excess inclusions. A domestic generally subject to chapter 3 withholding and
mentation for purposes of Form 1099 reporting partnership must separately state a partner's al­ withholding may apply under chapter 4 absent
and backup withholding. locable share of REMIC taxable income or net an applicable withholding exception. In addi­
Interest on such obligations is not a with­ loss and the excess inclusion amount on tion, if “allocable interest” exceeds the branch
holdable payment under chapter 4, except Schedule K­1 (Form 1065). If the partnership al­ interest paid, the excess interest is also subject
when the instrument is materially modified after locates all or some part of its allocable share of to tax and reported on the foreign corporation's
March 18, 2012. REMIC taxable income to a foreign partner, the income tax return, Form 1120­F. See Instruc­
partner must include the partner's allocated tions for Form 1120­F for more information.
Interest that does not qualify as portfolio amount in income as if that amount was re­ If there is no treaty provision that reduces
interest. Payments to certain persons and ceived on the earlier of the following dates. the rate of withholding on branch interest, you
payments of contingent interest do not qualify must withhold tax under chapter 3 at the statu­
1. The date of distribution by the partnership.
as portfolio interest. You must withhold at the tory rate of 30% on the interest paid by a foreign
statutory rate on such payments unless some 2. The date the foreign partner disposed of corporation's U.S. trade or business and you
other exception, such as a treaty provision, ap­ its indirect interest in the REMIC residual must withhold under chapter 4 when otherwise
plies and withholding under chapter 4 does not interest. applicable and without regard to a treaty provi­
apply. sion.
3. The last day of the partnership's tax year.
Contingent interest. Portfolio interest gen­
For purposes of item (2), the disposition In general, payees of interest from a U.S.
erally does not include contingent interest. Con­
may occur as a result of: trade or business of a foreign corporation are
tingent interest is interest that is determined by
A termination of the REMIC, entitled to reduced rates of, or exemption from,
reference to any of the following.
A disposition of the partnership's residual tax under a treaty in the same manner and sub­
Any receipts, sales, or other cash flow of
interest in the REMIC, ject to the same conditions as if they had re­
the debtor or related person.
A disposition of the foreign partner's inter­ ceived the interest from a domestic corporation.
Income or profits of the debtor or related
est in the partnership, or However, a foreign corporation that receives in­
person.
Any other reduction in the foreign partner's terest paid by a U.S. trade or business of a for­
Any change in value of any property of the
allocable share of the partnership's part of eign corporation also must be a qualified resi­
debtor or a related person.
the REMIC net income or deduction. dent of its country of residence to be entitled to
Any dividend, partnership distributions, or
similar payments made by the debtor or a The partnership must withhold tax on the benefits under that country's tax treaty. If the
related person. part of the REMIC amount that is an excess in­ payee foreign corporation is a resident of a
Any amount that is a dividend equivalent. clusion. Excess inclusion income is treated as country that has entered into an income tax
income from sources in the United States and is treaty since 1987 that contains a limitation on
The term “related person” is defined in section benefits article, the foreign corporation need
not eligible for any reduction in withholding tax
871(h)(4)(B) of the Internal Revenue Code. only satisfy the limitation on benefits article in
(by treaty or otherwise). It is also a withholdable
payment for chapter 4 purposes. that treaty to qualify for a reduced rate of tax.
The contingent interest rule does not apply An excess inclusion allocated to the follow­
to any interest paid or accrued on any indebted­ ing foreign persons must be included in that Alternatively, a payee may be entitled to
ness with a fixed term that was issued: person's income at the same time as other in­ treaty benefits under the payer's treaty if there
On or before April 7, 1993, or come from the entity is included in income. is a provision in that treaty that applies specifi­
After April 7, 1993, pursuant to a written Shareholder of a real estate investment cally to interest paid by the payer foreign corpo­
binding contract in effect on that date and trust (REIT). ration. This provision may exempt all or a part of
at all times thereafter before that indebted­ Shareholder of a RIC. this interest. Some treaties provide for an ex­
ness was issued. Participant in a common trust fund. emption regardless of the payee's residence or
Ten­percent owners. Interest paid to a for­ Patron of a subchapter T cooperative or­ citizenship, while others provide for an exemp­
eign person that owns 10% or more of the total ganization. tion according to the payee's status as a resi­
combined voting power of all classes of stock of The entity must withhold on the excess inclu­ dent or citizen of the payer's country.
a corporation, or 10% or more of the capital or sion.
profits interest in a partnership, that issued the For information on the taxation and reporting A foreign corporation that pays interest must
obligation on which the interest is paid is not of excess inclusion income by REITs, RICs, and be a qualified resident (under section 884 of the
portfolio interest. To determine 10% ownership, other pass­through entities, see Notice Internal Revenue Code) of its country of resi­
see Regulations section 1.871­14(g). 2006­97, 2006­46 I.R.B. 904, available at dence for the payer's treaty to exempt pay­
www.irs.gov/irb/2006­46_IRB/ar14.html. ments from tax by the foreign corporation. How­
Banks. Except in the case of interest paid ever, if the foreign corporation is a resident of a
on an obligation of the United States, interest Reduced rate or exemption from chapter 3 country that has entered into an income tax
paid to a bank on an extension of credit made withholding for interest paid to controlled treaty since 1987 that contains a limitation on
pursuant to a loan agreement entered into in the foreign corporations (Income Code 3). A benefits article, the foreign corporation need
ordinary course of the bank's trade or business treaty may permit a reduced rate or exemption only satisfy the limitation on benefits article in
does not qualify as portfolio interest. for interest paid by a domestic corporation to a that treaty to qualify for the exemption.
Controlled foreign corporations. Interest controlling foreign corporation. The interest may
paid to a controlled foreign corporation from a be on any type of debt, including open or unse­ Interest on deposits (Income Code 29). For­
person related to the controlled foreign corpora­ cured accounts payable, notes, certificates, eign persons are not subject to chapter 3 with­
tion is not portfolio interest. bonds, or other evidences of indebtedness. holding on interest that is not connected with a
U.S. trade or business if it is from:
Reduced rate or exemption from chapter 3 Reduced rate or exemption from chapter 3 Deposits with persons carrying on the
withholding for interest on real property withholding for interest paid by foreign cor­ banking business,
mortgages (Income Code 2). Certain treaties porations (Income Code 4). If a foreign cor­ Deposits or withdrawable accounts with
permit a reduced rate or exemption for interest poration is engaged in a U.S. trade or business, savings institutions chartered and super­
paid or credited on real property mortgages. any interest paid by the foreign corporation's vised under federal or state law as savings
This is interest paid on any type of debt instru­ trade or business in the United States (branch and loan or similar associations, such as
ment that is secured by a mortgage or deed of interest) is subject to chapter 3 withholding as if credit unions, if the interest is or would be
trust on real property located in the United paid by a domestic corporation (without consid­ deductible by the institutions, or
States, regardless of whether the mortgagor (or ering the “payer having income from abroad” Amounts left with an insurance company
grantor) is a U.S. citizen or a U.S. business en­ exception) and is a withholdable payment. As a under an agreement to pay interest on
tity. result, the interest paid to foreign payees is them.

Page 28 Publication 515 (2017)

Deposits include certificates of deposit, open years beginning before January 1, 2011, the However, a distributing corporation or interme­
account time deposits, Eurodollar certificates of corporation can use only its gross income for diary may elect to not withhold on the part of the
deposit, and other deposit arrangements. any tax year beginning before January 1, 2011, distribution that:
You may have to file Form 1042­S to report and will meet the 80% test if the weighted aver­
1. Represents a nontaxable distribution pay­
certain payments of interest on deposits. See age percentage of active foreign business in­
able in stock or stock rights,
Deposit interest paid to certain nonresident come is more than 80%.
alien individuals under Returns Required, later. A foreign beneficial owner does not need to 2. Represents a distribution in part or full
You may also have to file Form 1042­S when provide a Form W­8 or documentary evidence payment in exchange for stock,
the deposit interest is a withholdable payment for this exception. However, documentation 3. Is not paid out of current or accumulated
to which withholding applies (or was applied) may be required for purposes of Form 1099 re­ earnings and profits, based on a reasona­
under chapter 4. porting and backup withholding. ble estimate of the anticipated amount of
Interest from foreign business arrange­ earnings and profits for the tax year of the
Sales of bonds between interest dates.
ments. In certain cases, interest received from distribution made at a time reasonably
Amounts paid as part of the purchase price of
a domestic payer most of whose gross income close to the date of the distribution,
an obligation sold or exchanged between inter­
is active foreign business income is not subject est payment dates is not subject to chapter 3 4. Represents a capital gain dividend (use
to chapter 3 withholding and is not a withholda­ withholding. In addition, such a payment is not a Income Code 36) or an exempt interest
ble payment. withholdable payment. This does not apply if dividend by a regulated investment com­
Active foreign business income is gross in­ the sale or exchange is part of a plan the princi­ pany, or
come which is: pal purpose of which is to avoid tax and you
Derived from sources outside the United 5. Is subject to withholding under section
have actual knowledge or reason to know of the
States, and 1445 of the Code (withholding of tax on
plan. The exemption from chapter 3 withholding
Attributable to the active conduct of a trade dispositions of U.S. real property interests)
and from withholdable payments applies even if
or business in a foreign country or posses­ and the distributing corporation is a U.S.
you do not have any documentation from the
sion of the United States by the domestic real property holding corporation or a
payee. However, documentation may be re­
payer. qualified investment entity (QIE).
quired for purposes of Form 1099 reporting and
backup withholding. The election is made by actually reducing the
Obligations issued before August 10, 2010.
amount of withholding at the time the distribu­
Interest received from a resident alien individual Short­term obligations. Interest and original tion is paid.
or a domestic corporation is not subject to issue discount paid on an obligation that is pay­ A QIE is:
chapter 3 withholding and is not a withholdable able 183 days or less from the date of its origi­
payment if the interest meets all of the following nal issue (without regard to the period held by 1. Any REIT, or
requirements. the taxpayer) that satisfy other requirements in­
At least 80% of the payer’s gross income 2. Any RIC that is a U.S. real property hold­
tended to ensure that the debt is not held by a ing corporation.
from all sources has been from active for­ U.S. non­exempt person is not subject to chap­
eign business for the 3 tax years of the ter 3 withholding. In addition, such a payment is Dividends paid by a QIE (Income Code
payer before the year in which the interest not a withholdable payment. These exemptions 24). A distribution by a QIE to a nonresident
is paid, or for the applicable part of those 3 apply even if you do not have any documenta­ alien or a foreign corporation is treated as a div­
years. tion from the payee. However, documentation idend and is not subject to withholding under
The recipient is not a related person. Use may be required for purposes of Form 1099 re­ section 1445 as a gain from the sale or ex­
rules similar to those in section 954(d)(3) porting and backup withholding. change of a U.S. real property interest if:
of the Internal Revenue Code to determine The distribution is on stock regularly traded
if the recipient is a related person. Income from U.S. Savings Bonds of resi­ on a securities market in the United States,
The interest is paid on an obligation issued dents of the Ryukyu Islands or the Trust and
before August 10, 2010. Territory of the Pacific Islands. Interest from The individual or corporation did not own
The obligation has not been significantly a Series E, Series EE, Series H, or Series HH more than 10% of such stock in the case of
modified since August 10, 2010. U.S. Savings Bond is not subject to chapter 3 a REIT (5% for dispositions before Decem­
withholding if the nonresident alien individual ber 18, 2015) or 5% of such stock in case
Corporations existing on January 1, 2011. acquired the bond while a resident of the Ryu­ of a RIC at any time during the 1­year pe­
Certain interest received from a domestic cor­ kyu Islands or the Trust Territory of the Pacific riod ending on the date of distribution.
poration that is an existing 80/20 company is Islands.
not subject to withholding. An existing 80/20 Certain distributions by a REIT may be treated
company must meet all of the following require­ as a dividend and are not subject to withholding
ments. Dividends under section 1445 as a gain from the sale or
It was in existence on January 1, 2011. exchange of a U.S. real property interest. See
The following types of dividends paid to foreign Qualified investment entities under U.S. Real
For the 3 tax years beginning before Janu­
payees are generally subject to chapter 3 with­ Property Interest, later.
ary 1, 2011 (or for its years of existence if
holding and are generally withholdable pay­
the corporation was in existence for less Dividends paid by a domestic corpora­
ments such that withholding under chapter 4
than 3 tax years), at least 80% of its gross tion (an existing “80/20” company). The ac­
applies absent an exception available under
income from all sources was active foreign tive foreign business percentage of any divi­
chapter 4.
business income. dend paid by a domestic corporation that is an
It continues to meet the 80­percent test for existing 80/20 company is not subject to with­
Dividends paid by U.S. corporations — gen­
every tax year beginning after December holding. A domestic corporation is an existing
eral (Income Code 6). This category includes
31, 2010. 80/20 company if it satisfies all of the following.
all distributions of domestic corporations (other
It has not added a substantial line of busi­
than dividends qualifying for direct dividend 1. It was in existence on January 1, 2011.
ness after August 10, 2010.
rate—Income Code 7).
A corporation making a distribution with re­ 2. For the 3 tax years beginning before Janu­
Transitional rule for active foreign business ary 1, 2011 (or for all years of existence if
income. In most cases, the domestic corpora­ spect to its stock or any intermediary making a
payment of such a distribution, is required to it was in existence for less than 3 tax
tion determines its active foreign business in­ years), at least 80% of its gross income
come by combining its income and the income withhold on the entire amount of the distribution
at the rate applicable under chapter 3 when from all sources was active foreign busi­
of any subsidiary in which it owns, directly or in­ ness income. Active foreign business in­
directly, 50% or more of the stock. However, if withholding under chapter 4 does not apply.
come is gross income that is:
the testing period includes one or more tax

Publication 515 (2017) Page 29

 a. Derived from sources outside the Uni­ conduct of a banking, financing, or insurance nonfinancial entities. See the chapter 4 regula­
ted States, and business. A foreign person should claim the di­ tions for information on these special require­
rect dividend rate by filing the appropriate Form ments.
b. Attributable to the active conduct of a
W­8.
trade or business in a foreign country
or possession of the United States by Consent dividends. If you receive a Form Dividend Equivalents
the corporation. 972 from a foreign shareholder qualifying for the
direct dividend rate, you must pay and report on Dividend equivalent payments. Dividend
3. It continues to meet the 80­percent test for equivalent payments are treated as U.S. source
every tax year beginning after December Form 1042 and Form 1042­S any withholding
tax you would have withheld if the dividend had dividends such that withholding under chapter 3
31, 2010. may apply. Use Income Code 34 or 40 to report
been actually paid.
4. It has not added a substantial line of busi­ dividend equivalent payments. Dividend equiv­
ness after August 10, 2010. Dividends paid by foreign corporations (In­ alent payments are withholdable payments ex­
come Code 8). Dividends paid by a foreign cept when an exception applies for chapter 4
Transitional rule for item (2). In most ca­ purposes. For example, withholdable payments
corporation are generally not subject to chap­
ses, the domestic corporation determines its exclude certain offshore payments made before
ter 3 withholding and are not withholdable pay­
active foreign business income by combining its January 1, 2017.
ments. This exception does not require a Form
income and the income of any subsidiary in A dividend equivalent is a payment (as de­
W­8. However, a Form W­8 may be required for
which it owns, directly or indirectly, 50% or fined in Regulations section 1.871­15(a)(10))
purposes of Form 1099 reporting and backup
more of the stock. However, if the testing period that, directly or indirectly, is contingent on, or
withholding.
includes one or more tax years beginning be­ determined by reference to, the payment of a
The payment to a foreign corporation by a
fore January 1, 2011, the corporation can use dividend from U.S. sources. Dividend equiva­
foreign corporation of a deemed dividend under
only its gross income for any tax year beginning lent payments include the following payments.
section 304(a)(1) of the Code is subject to
before January 1, 2011, and will meet the 80%
chapter 3 withholding and may be a withholda­ 1. A substitute dividend made under a secur­
test if the weighted average percentage of ac­
ble payment except to the extent it can be ities lending or sale­repurchase transac­
tive foreign business income is more than 80%.
clearly determined to be from foreign sources. tion involving a U.S. stock,
The active foreign business percentage is
found by dividing the corporation’s active for­ Corporation subject to branch profits 2. A payment that references the payment of
eign business income for the testing period by tax. If a foreign corporation is subject to branch a dividend from an underlying security
the corporation’s total gross income for that pe­ profits tax for any tax year, withholding is not re­ made under a specified notional principal
riod. The testing period is the 3 tax years before quired on any dividends paid by the corporation contract, and
the year in which the dividends are declared (or out of its earnings and profits for that tax year.
shorter period if the corporation was not in exis­ 3. Any payment determined by regulations to
Dividends may be subject to withholding if they
tence for 3 years). If the corporation has no be substantially similar to a payment in (1)
are attributable to any earnings and profits
gross income for that 3­year period, the testing or (2) above.
when the branch profits tax is prohibited by a
period is the tax year in which the dividend is tax treaty. Substitute dividend (Income Code 34).
paid. A foreign person may claim a treaty benefit A substitute dividend is any payment made in a
on dividends paid by a foreign corporation to securities lending or sale­repurchase transac­
Consent dividends. If you receive a Form
the extent the dividends are paid out of earn­ tion that (directly or indirectly) is contingent
972, Consent of Shareholder To Include Spe­
ings and profits in a year in which the foreign upon, or determined by reference to, the pay­
cific Amount in Gross Income, from a nonresi­
corporation was not subject to the branch prof­ ment of a dividend from sources in the United
dent alien individual or other foreign share­
its tax. However, you may apply a reduced rate States.
holder who agrees to treat the amount as a
of withholding under an income tax treaty only
taxable dividend, you must pay and report on Specified notional principal contract
under rules similar to the rules that apply to
Form 1042 and Form 1042­S any withholding (SNPC) (Income Code 40). For payments
treaty benefits claimed on branch interest paid
tax you would have withheld if the dividend had made before January 1, 2017, a specified no­
by a foreign corporation. You should check the
been actually paid. tional principal contract is any notional principal
specific treaty provision.
contract that satisfies one or more of the follow­
Interest­related dividends and short­term ing.
Dividends paid to Puerto Rico corporation.
capital gain dividends received from mutual In connection with entering into the con­
For chapter 3 purposes, the tax rate on divi­
funds. Certain interest­related dividends and tract, any long party to the contract trans­
dends paid to a corporation created or organ­
short­term capital gain dividends paid by a mu­ fers the underlying security to any short
ized in, or under the law of, the Commonwealth
tual fund or other regulated investment com­ party to the contract.
of Puerto Rico is 10%, rather than 30%, if:
pany are exempt from chapter 3 withholding. In connection with the termination of the
At all times during the tax year less than
25% in value of the Puerto Rico corpora­ contract, any short party to the contract
Dividends qualifying for direct dividend
tion's stock is owned, directly or indirectly, transfers the underlying security to any
rate (Income Code 7). A treaty may reduce
by foreign persons, long party to the contract.
the rate of withholding on dividends from that
At least 65% of the Puerto Rico corpora­ The underlying security is not readily trade­
which generally applies under the treaty if the
tion's gross income is effectively connec­ able on an established securities market.
shareholder owns a certain percentage of the
ted with the conduct of a trade or business In connection with entering into the con­
voting stock of the corporation when withhold­
in Puerto Rico or the United States for the tract, the underlying security is posted as
ing under chapter 4 does not apply. In most ca­
3­year period ending with the close of the collateral by any short party to the contract
ses, this preferential rate applies only if the
tax year of that corporation (or the period with any long party to the contract.
shareholder directly owns the required percent­
age, although some treaties permit the percent­ the corporation or any predecessor has
been in existence, if less), and Dividend equivalents with respect to
age to be met by direct or indirect ownership.
No substantial part of the income of the specified notional principal contracts and
The preferential rate may apply to the payment
Puerto Rico corporation is used, directly or specified equity­linked instruments begin­
of a deemed dividend under section 304(a)(1)
indirectly, to satisfy obligations to a person ning on or after January 1, 2017 (Income
of the Code. Under some treaties, the preferen­
who is not a bona fide resident of Puerto Code 40). For more information about divi­
tial rate for dividends qualifying for the direct
Rico or the United States. dend equivalents with respect to specified no­
dividend rate applies only if no more than a cer­
tional principal contracts and specified
tain percentage of the paying corporation's No special rules apply to Puerto Rico corpo­
equity­linked instruments beginning on or after
gross income for a certain period consists of rations for chapter 4 purposes, but special with­
January 1, 2017, see Regulations section
dividends and interest other than dividends and holding rules do apply for withholdable pay­
1.871­15.
interest from subsidiaries or from the active ments made to territory financial institutions and

Page 30 Publication 515 (2017)

 Amounts paid to qualified securities Unless you have reason to believe other­ withholdable payment because it is effectively
lenders. A withholding agent that makes pay­ wise, you may rely upon the written statement connected income. For withholding that applies
ments of substitute dividends to a qualified se­ of the person entitled to the income as to the to the disposition of U.S. real property interests,
curities lender (QSL) should treat the QSL as amount of gain. The Form W­8 or documentary see U.S. Real Property Interest, later.
the recipient. The withholding agent is not re­ evidence must show the beneficial owner's ba­
quired to withhold under chapter 3 or 4 on a sis in the property giving rise to the gain. Pensions, Annuities, and
substitute dividend payment if it receives, at Alimony (Income Code 15)
least annually, a certificate from the QSL that in­ Tax treaties. Many tax treaties exempt certain
cludes a statement with the following informa­ types of gains from U.S. income tax. Be sure to The following rules apply to withholding on pen­
tion. carefully check the provision of the treaty that sions, annuities, and alimony of foreign payees.
The recipient of the substitute dividend is a applies before allowing an exemption from with­
QSL, and holding. Pensions and annuities. In most cases, you
With respect to the substitute dividend it must withhold tax on the gross amount of pen­
receives from the withholding agent, the Royalties sions and annuities that you pay that are from
QSL states that it will withhold and remit sources within the United States. This includes
the proper amount of U.S. gross­basis tax. In general, you must withhold tax under chap­ amounts paid under an annuity contract issued
ter 3 on the payment of royalties from sources by a foreign branch of a U.S. life insurance
For more information, see Notice 2010­46, in the United States. However, certain types of company. However, most tax treaties provide
2010­24 I.R.B. 757, available at www.irs.gov/ royalties are given reduced rates or exemptions that private pensions and annuities are exempt
irb/2010­24_IRB/ar09.html. under some tax treaties. Accordingly, these dif­ from chapter 3 withholding.
The Internal Revenue Service has is­ ferent types of royalties are treated as separate For purposes of chapter 3 withholding, in the
sued final regulations that would affect categories for withholding purposes. For chap­ absence of a treaty exemption, you must with­
!
CAUTION the treatment of dividend equivalent ter 4 purposes, royalties are nonfinancial pay­ hold at the statutory rate of 30% on the entire
payments and specified notional principal con­ ments and are therefore excluded as withholda­ distribution that is from sources within the Uni­
tracts. You can view this regulation at ble payments. ted States. You may, however, apply withhold­
www.irs.gov/irb/2013­52_IRB/ar08.html. Most treaties have more than one with­ ing at graduated rates to the part of a distribu­
holding rate on royalties, which varies tion that arises from the performance of
Amounts paid to qualified derivative
!
CAUTION by the classification of the payment in
services in the United States after December
dealers (QDDs). For more information on that treaty. Be sure to check your particular 31, 1986.
amounts paid to QDDs, see the chapter 3 regu­ treaty for the specific rate that applies to you. Employer contributions to a defined benefit
lations issued with the section 871(m) regula­ plan covering more than one individual are not
tions. made for the benefit of a specific participant,
Industrial royalties (Income Code 10). This but are made based on the total liabilities to all
category of income includes royalties for the participants. All funds held under the plan are
Gains use of, or the right to use, patents, trademarks, available to provide benefits to any participant.
secret processes and formulas, goodwill, If the distribution is from such a plan, you can
You generally do not need to withhold under franchises, “know­how,” and similar rights. It
chapter 3 or 4 on any gain from the sale of real use the method in Revenue Procedure 2004­37
may also include payments for the use of, or to allocate the distribution to sources in the Uni­
or personal property because it is not FDAP in­ right to use, industrial, commercial, and scien­
come. However, see U.S. Real Property Inter­ ted States.
tific equipment, when this is included in the
est, later. The withholding rules that apply to pay­
treaty definition of royalties.
ments to foreign persons generally take prece­
Capital gains (Income Code 9). You must dence over any other withholding rules that
Motion picture or television copyright royal­
withhold at 30%, or if applicable, a reduced would apply to distributions from qualified plans
ties (Income Code 11). This category refers
treaty rate, on the gross amount of the following and other qualified retirement arrangements.
to royalties paid for the use of motion picture
items: and television copyrights. Foreign pension plans are exempt from ap­
Gains on the disposal of timber, coal, or plying withholding under chapter 4 when they
domestic iron ore with a retained economic Other royalties (for example, copyright, re­ are exempt beneficial owners under Treasury
interest, unless an election is made to treat cording, publishing) (Income Code 12). regulations section 1.1471­6(f). A payment from
those gains as income effectively connec­ This category refers to the royalties paid for the a U.S. pension plan to a foreign individual bene­
ted with a U.S. trade or business, use of copyrights on books, periodicals, arti­ ficiary in the plan is not subject to withholding
Gains on contingent payments received cles, etc., except motion picture and television under chapter 4.
from the sale or exchange after October 4, copyrights.
1966, of patents, copyrights, secret pro­ No withholding. Do not withhold tax on an an­
cesses and formulas, goodwill, trade­ nuity payment to a nonresident alien if at the
marks, trade brands, franchises, and other Real Property Income and time of the first payment from the plan, 90% or
like property, Natural Resources Royalties more of the employees eligible for benefits un­
Gains on certain transfers of all substantial (Income Code 14) der the plan are citizens or residents of the Uni­
rights to, or an undivided interest in, pat­ ted States and the payment is:
ents if the transfers were made before Oc­ You must withhold tax under chapter 3 on in­
come (such as rents and royalties) from real 1. For the nonresident's personal services
tober 5, 1966, and performed outside the United States; or
Certain gains from the sale or exchange of property located in the United States and held
original issue discount obligations issued for the production of income, unless the foreign 2. For personal services by a nonresident in­
after March 31, 1972. For more on with­ payee elects to treat this income as effectively dividual present in the United States for 90
holding on original issue discount obliga­ connected with a U.S. trade or business. If the days or less during each tax year, whose
tions, see Interest, earlier. foreign payee chooses to treat this income as pay for those services did not exceed
effectively connected, the payee must give you $3,000, and the personal services were
If you do not know the amount of the gain, Form W­8ECI (discussed earlier). This real performed for:
you must withhold an amount necessary to en­ property income includes royalties from mines,
sure that the tax withheld will not be less than wells, or other natural deposits, as well as ordi­ a. A nonresident alien individual, foreign
30% of the recognized gain. The amount to be nary rents for the use of real property. For chap­ partnership, or foreign corporation not
withheld, however, must not be more than 30% ter 4 purposes, income from real property is ei­ engaged in a trade or business in the
of the amount payable because of the transac­ ther a nonfinancial payment (and therefore not United States; or
tion. a withholdable payment) or is excluded as a

Publication 515 (2017) Page 31

 b. An office or place of business of a and board are subject to withholding and are re­ This is figured by multiplying the daily exemp­
U.S. resident or citizen which was ported on Form 1042­S. The withholding rate is tion amount by the number of days the student
maintained outside the United States. 14% on taxable scholarship and fellowship or grantee expects to be in the United States
grants paid to nonresident aliens temporarily during the year. The prorated exemption
If the payment otherwise qualifies under present in the United States in “F,” “J,” “M,” or amount should be shown on line A of the Per­
these rules, but less than 90% of the employees “Q” nonimmigrant status. Payments made to sonal Allowances Worksheet that comes with
eligible for benefits are citizens or residents of nonresident alien individuals in any other immi­ Form W­4. See Publication 519 for the current
the United States, you still need not withhold tax gration status are subject to 30% withholding. year daily exemption amount.
on the payment if:
In most cases, zero (­0­) should be shown
The recipient is a resident of a country that Nondegree candidate. If the person receiving on line B of the worksheet. But, a student or
gives a substantially equal exclusion to the scholarship or fellowship grant is not a can­ grantee who qualifies under Article 21(2) of the
U.S. citizens and residents, or didate for a degree, and is present in the United United States­India income tax treaty can enter
The recipient is a resident of a beneficiary States in “F,” “J,” “M,” or “Q” nonimmigrant sta­ the standard deduction if he or she does not
developing country under the Trade Act of tus, you must withhold tax at 14% on the total claim away­from­home expenses or other item­
1974. amount of the grant that is from U.S. sources if ized deductions (discussed later).
The foreign person entitled to the payments the following requirements are met. In most cases, zero (­0­) should be shown
must provide you with a Form W­8BEN that 1. The grant must be for study, training, or re­ on lines C and D of the worksheet. But, an addi­
contains the TIN of the foreign person. search in the United States. tional daily exemption amount may be allowed
for the spouse and each dependent if the stu­
Alimony payments. In most cases, alimony 2. The grant must be made by: dent or grantee is:
payments made by U.S. resident aliens to non­ A resident of Canada, Mexico, or South
a. A tax­exempt organization operated
resident aliens are taxable and subject to chap­ Korea;
for charitable, religious, educational,
ter 3 withholding whether the recipients are re­ A U.S. national (a citizen of American Sa­
etc. purposes,
siding abroad or are temporarily present in the moa, or a Northern Mariana Islander who
United States. b. A foreign government, chose to become a U.S. national); or
Many tax treaties, however, provide for an c. A federal, state, or local government Eligible for the benefits of Article 21(2) of
exemption from withholding for alimony pay­ agency, or the United States­India income tax treaty.
ments. See Tax Treaties, later, for information
d. An international organization, or a bi­ These additional amounts should be entered on
about treaty benefits.
national or multinational educational lines C and D, as appropriate.
Alimony payments made to a nonresident
or cultural organization created or As lines E, F, and G of the worksheet do not
alien by a U.S. ancillary administrator of a non­
continued by the Mutual Educational apply to nonresident aliens subject to this pro­
resident alien estate are from foreign sources
and Cultural Exchange Act of 1961 cedure, there should be no entries on those
and are not subject to withholding. Alimony pay­
(known as the Fulbright­Hays Act). lines.
ments are not subject to chapter 4 withholding.
The student or grantee can claim other ex­
If the grant does not meet both (1) and (2) penses that will be deductible on Form
Scholarships and Fellowship above, you must withhold at 30% on the 1040NR, U.S. Nonresident Alien Income Tax
Grants Subject to Chapter 3 amount of the grant that is from U.S. sources. Return. These include student loan interest,
Withholding (Income Code 16) certain state and local income taxes, charitable
Alternate withholding procedure. You may contributions, and casualty losses. He or she
A scholarship or fellowship grant is an amount choose to treat the taxable part of a U.S. source should include these anticipated amounts on
given to an individual for study, training, or re­ grant or scholarship as wages. The student or line A of the worksheet.
search, and which does not constitute compen­ grantee must have been admitted into the Uni­ The student or grantee can also enter on
sation for personal services. Whether a fellow­ ted States on an “F,” “J,” “M,” or “Q” visa. The line A of the worksheet, the part of the grant or
ship grant from U.S. sources is subject to student or grantee will know that you are using scholarship that is tax exempt under the statute
chapter 3 withholding depends on the nature of this alternate withholding procedure when you or a tax treaty.
the payments and whether the recipient is a ask for a Form W­4.
Lines A through D of the Personal Allowan­
candidate for a degree. These amounts are not The student or grantee must complete Form ces Worksheet are added and the total should
subject to chapter 4 withholding. See Scholar­ W­4 annually following the instructions given be shown on line H.
ships, fellowships, and grants under Source of here and forward it to you, the payer of the
The payer of the grant or scholarship must
Income, earlier. scholarship, or your designated withholding
review the Form W­4 to make sure all the nec­
agent. You may rely on the information on Form
Candidate for a degree. Do not withhold on a essary and required information is provided. If
W­4 unless you know or have reason to know it
qualified scholarship from U.S. sources granted the withholding agent knows or has reason to
is incorrect. You must file a Form 1042­S (dis­
and paid to a candidate for a degree. A quali­ know that the amounts shown on the Form W­4
cussed later) for each student or grantee who
fied scholarship means any amount paid to an may be false, the withholding agent must reject
gives you, or your withholding agent, a Form
individual as a scholarship or fellowship grant to the Form W­4 and withhold at the appropriate
W­4.
the extent that, in accordance with the condi­ statutory rate (14% or 30%).
Each student or grantee who files a Form
tions of the grant, the amount is to be used for After receipt and acceptance of the Form
W­4 must file an annual U.S. income tax return
the following expenses: W­4, the payer must withhold at the graduated
to be allowed the exemptions and deductions
Tuition and fees required for enrollment or rates in Publication 15 (Circular E) as if the
claimed on that form. If the individual is in the
attendance at an educational organization, grant or scholarship income were wages. The
United States during more than one tax year, he
and gross amount of the income is reduced by the
or she must attach a statement to the annual
Fees, books, supplies, and equipment re­ total amount of exemptions and deductions on
Form W­4 indicating that the individual has filed
quired for courses of instruction at the edu­ the Form W­4 and the withholding tax is figured
a U.S. income tax return for the previous year. If
cational organization. on the rest.
he or she has not been in the United States
long enough to have to file a return, the individ­ When completing Form 1042­S for the stu­
The payment of a qualified scholarship to a
ual must attach a statement to the Form W­4 dent or grantee, enter the taxable part (gross
nonresident alien is not reportable and is not
saying that a timely U.S. income tax return will amount less qualified scholarship) of the schol­
subject to withholding. However, the part of a
be filed. arship or fellowship grant in box 2, enter the
scholarship or fellowship paid to a nonresident withholding allowance amount from line H of the
alien which does not constitute a qualified A prorated part of allowable personal ex­
Personal Allowances Worksheet of Form W­4 in
scholarship is reportable on Form 1042­S and emptions based on the projected number of
box 5, and show the net of these two amounts
is subject to withholding. For example, those days he or she will be in this country is allowed.
in box 6.
parts of a scholarship devoted to travel, room,

Page 32 Publication 515 (2017)

Pay for services rendered. Pay for services a TIN has been applied for, can be given to you is taxable to the recipient unless all of the fol­
rendered as an employee by an alien who also with a Form 8233. See Form 8233, later, under lowing conditions are met:
is the recipient of a scholarship or fellowship Pay for Personal Services Performed. The recipient was selected without any ac­
grant usually is subject to graduated withhold­ tion on his or her part to enter the contest
ing under chapter 3 according to the rules dis­ Nonresident alien who becomes a resi­ or proceeding,
cussed later in Wages Paid to Employ­ dent alien. In most cases, only a nonresident The recipient is not required to render sub­
ees—Graduated Withholding. This includes alien individual may use the terms of a tax treaty stantial future services as a condition to re­
taxable amounts an individual who is a candi­ to reduce or eliminate U.S. tax on income from ceive the prize or award, and
date for a degree receives for teaching, doing a scholarship or fellowship grant. A student (in­ The prize or award is transferred by the
research, and carrying out other part­time em­ cluding a trainee or business apprentice) or re­ payer to a governmental unit or tax­exempt
ployment required as a condition for receiving searcher who has become a resident alien for charitable organization as designated by
the scholarship or fellowship grant. U.S. tax purposes may not use the terms of a the recipient.
tax treaty due to a provision known as a “saving
Grants given to students, trainees, or re­
clause.” However, an exception to the saving Targeted grants and achievement awards.
searchers which require the performance of
clause may permit an exemption from tax to Targeted grants and achievement awards re­
personal services as a necessary condition for
continue for scholarship or fellowship grant in­ ceived by nonresident aliens for activities con­
disbursing the grant do not qualify as scholar­
come even after the recipient has otherwise be­ ducted outside the United States are treated as
ship or fellowship grants. Instead, they are com­
come a U.S. resident alien for tax purposes. In income from foreign sources. Targeted grants
pensation for personal services considered to
this situation, the individual must give you a and achievement awards are issued by exempt
be wages. It does not matter what term is used
Form W­9 and an attachment that includes all organizations or by the United States (or one of
to describe the grant (for example, stipend,
the following information. its instruments or agencies), a state (or a politi­
scholarship, fellowship, etc.).
The treaty country. cal subdivision of a state), or the District of Co­
Withholding agents who pay grants The treaty article addressing the income. lumbia for an activity (or past activity in the case
! that are in fact wages must report such The article number (or location) in the tax of an achievement award) undertaken in the
CAUTION grants on Forms 941 and W­2 and treaty that contains the saving clause and public interest.
withhold income tax on them at the graduated its exceptions.
rates. Withholding agents may not allow tax The type and amount of income that quali­
treaty exemptions that apply to scholarships fies for the exemption from tax. Pay for Personal
and fellowships to be applied to grants that are Sufficient facts to justify the exemption Services Performed
really wages. It is the responsibility of the with­ from tax under the terms of the treaty arti­
holding agent to determine whether a grant is cle. This section explains the rules for withholding
“wages” or a “scholarship or fellowship,” and to tax from pay for personal services. You gener­
report and withhold on the grant accordingly. An Example. Article 20 of the U.S.­China in­ ally must withhold tax at the 30% rate on com­
alien student, trainee, or researcher may not come tax treaty allows an exemption from tax pensation you pay to a nonresident alien indi­
claim a scholarship or fellowship treaty exemp­ for scholarship income received by a Chinese vidual for labor or personal services performed
tion against income that has been reported to student temporarily present in the United in the United States, unless that pay is specifi­
him on Form W­2 as wages. States. Under the Internal Revenue Code, a cally exempted from withholding or subject to
student may become a resident alien for tax graduated withholding. This rule applies regard­
Per diem paid by the U.S. Government. Per purposes if his or her stay in the United States less of your place of residence, the place where
diem for subsistence paid by the U.S. Govern­ exceeds 5 calendar years. However, the treaty the contract for service was made, or the place
ment (directly or by contract) to a nonresident allows the provisions of Article 20 to continue to of payment.
alien engaged in a training program in the Uni­ apply even after the Chinese student becomes
a resident alien of the United States. Payments for personal services are not with­
ted States funded by the U.S. Agency for Inter­ holdable payments under chapter 4 when they
national Development are not subject to 14% or are nonfinancial payments. See Treasury regu­
30% withholding. This is true even if the alien is Other Grants, Prizes, and Awards lations section 1.1473­1(a)(4)(iii) for a descrip­
subject to income tax on those amounts. Subject to Chapter 3 Withholding tion of these payments and their exclusion as
withholdable payments.
Tax treaties. Many treaties contain exemp­ Other grants, prizes, and awards made by gran­
tions from U.S. taxation for scholarships and fel­ tors that reside in the United States are treated Illegal aliens. Foreign workers who are illegal
lowships. Although usually found in the student as income from sources within the United aliens are subject to U.S. taxes in spite of their
articles of the tax treaties, many of these ex­ States. Those made for activities conducted illegal status. U.S. employers or payers who
emptions also apply to research grants re­ outside the United States by a foreign person or hire illegal aliens may be subject to various
ceived by researchers who are not students. by grantors that reside outside the United fines, penalties, and sanctions imposed by U.S.
See Tax Treaties, later, for information about States are treated as income from foreign sour­ Immigration and Customs Enforcement. If such
treaty benefits. The treaty provision usually ex­ ces. These provisions do not apply to salaries employers or payers choose to hire illegal ali­
empts the entire scholarship or fellowship or other pay for services. ens, the payments made to those aliens are
amount, regardless of whether the grant is a subject to the same tax withholding and report­
“qualified scholarship” under U.S. law. Grant. The purpose of a grant must be to ach­ ing obligations that apply to other classes of ali­
An alien student, trainee, or researcher may ieve a specific objective, produce a report or ens. Illegal aliens who are nonresident aliens
claim a treaty exemption for a scholarship or fel­ other similar product, or improve or enhance a and who receive income from performing inde­
lowship by submitting Form W­8BEN to the literary, artistic, musical, scientific, teaching, or pendent personal services are subject to 30%
payer of the grant. However, a scholarship or other similar capacity, skill, or talent of the withholding unless exempt under some provi­
fellowship recipient who receives both wages grantee. A grant must also be an amount which sion of law or a tax treaty. Illegal aliens who are
and a scholarship or fellowship from the same does not qualify as a scholarship or fellowship. resident aliens and who receive income from
institution can claim treaty exemptions on both The grantor must not intend the amount to be performing dependent personal services are
kinds of income on Form 8233. given to the grantee for the purpose of aiding subject to the same reporting and withholding
the grantee to perform study, training, or re­ obligations that apply to U.S. citizens who re­
The scholarship or fellowship recipient who search. ceive the same kind of income.
is claiming a treaty exemption must provide you
with a foreign TIN on Form W­8BEN or, in the Prizes and awards. Prizes and awards are Form 8233, Exemption From Withholding
case of a recipient who also received wages amounts received primarily in recognition of reli­ on Compensation for Independent (and
from the same institution, a U.S. TIN on Form gious, charitable, scientific, educational, artistic, Certain Dependent) Personal Services of a
8233 or you cannot allow the treaty exemption. literary, or civic achievement, or are received as Nonresident Alien Individual. This form is
A copy of a completed Form W­7, showing that the result of entering a contest. A prize or award used by a nonresident alien individual to claim a

Publication 515 (2017) Page 33

tax treaty exemption from withholding on some Each allowable exemption must be prorated includes, but is not limited to, the following
or all compensation paid for: according to the number of days during the tax items.
Independent personal services (self­em­ year during which the alien performs services in A statement by each withholding agent
ployment), the United States. Multiply the number of these from whom amounts of gross income ef­
Dependent personal services, or days by the daily exemption amount to figure fectively connected with the conduct of a
Personal services income and noncom­ the prorated amount. Residents of South Korea U.S. trade or business have been received
pensatory scholarship or fellowship in­ must make a further proration of their additional by the alien during the tax year. It must
come from the same withholding agent. exemptions based on their gross income effec­ show the amount of income paid and the
tively connected with a U.S. trade or business. amount of tax withheld. The withholding
Persons providing independent personal
The rules for this proration are discussed in de­ agent must sign the statement and include
services can use Form 8233 to claim the per­
tail in Publication 519. a declaration that it is made under penal­
sonal exemption amount.
A U.S. national is an individual who owes his ties of perjury.
A withholding agent that receives Form
sole allegiance to the United States, but who is A statement by the withholding agent from
8233 from a nonresident alien individual claim­
not a U.S. citizen. Such an individual is usually whom the final payment of compensation
ing a tax treaty exemption must review the form,
a citizen of American Samoa or a Northern Ma­ for personal services will be received
sign to indicate its acceptance, and forward the
riana Islander who chose to become a U.S. na­ showing the amount of final payment and
form to the IRS within 5 days of its acceptance.
tional. the amount that would be withheld if a final
payment exemption is not granted. The
Form W­4, Employee's Withholding Allow­ Example 1. Hans Schmidt, who is a resi­ withholding agent must sign the statement
ance Certificate. This form is used by a per­ dent of Country X, worked (not as an employee) and include a declaration that it is made
son providing dependent personal services to for a U.S. company in the United States for 100 under penalties of perjury.
claim the personal exemption amount, but not a days during 2017 before returning to his coun­ A statement by the alien that he or she
tax treaty exemption. Nonresident alien individ­ try. He earned $7,500 for the services per­ does not intend to receive any other
uals are subject to special instructions for com­ formed (not considered wages) in the United amounts of gross income effectively con­
pleting the Form W­4. See the discussion under States. Hans is married and has three depend­ nected with the conduct of a U.S. trade or
Wages Paid to Employees—Graduated With­ ent children. His spouse did not work and had business during the current tax year.
holding, later. no income subject to U.S. tax. Hans is allowed The amount of tax that has been withheld
$1,110 as a deduction against the payments for (or paid) under any other provision of the
Pay for independent personal services (In­ his personal services performed in the United Code or regulations for any income effec­
come Code 17). Independent personal serv­ States (100 days × $11.10 (the daily personal tively connected with the conduct of a U.S.
ices (a term commonly used in tax treaties) are exemption amount for 2017)). Tax must be trade or business during the current tax
personal services performed by an independent withheld at 30% on the rest of his earnings, year.
nonresident alien contractor as contrasted with $6,390 ($7,500 − $1,110). The amount of any outstanding tax liabili­
those performed by an employee. This category
Example 2. If, in Example 1, Hans were a ties, including any interest and penalties,
of pay includes payments for professional serv­
resident of Mexico, working under contract with from the current tax year or prior tax peri­
ices, such as fees of an attorney, physician, or
a domestic corporation, $5,550 (100 days × ods.
accountant made directly to the person per­
$11.10 per day (the daily exemption amount for The provision of any income tax treaty un­
forming the services. It also includes honoraria
2017) for each of five exemptions) would be al­ der which a partial or complete exemption
paid by colleges and universities to visiting
lowed against the payments for personal serv­ from withholding may be claimed, the
teachers, lecturers, and researchers.
ices performed in the United States. Tax must country of the alien's residence, and a
Pay for independent personal services is statement of sufficient facts to justify an ex­
subject to chapter 3 withholding and reporting be withheld at 30% on the rest of his earnings,
$1,950 ($7,500 − $5,550). emption under that treaty.
as follows.
The alien must give a statement, signed and
30% rate. You must withhold at the statu­ Withholding agreements. Pay for per­
verified by a declaration that it is made under
tory rate of 30% on all payments unless the sonal services of a nonresident alien who is en­
the penalties of perjury, that all the information
alien enters into a withholding agreement or re­ gaged during the tax year in the conduct of a
provided is true, and that to his or her knowl­
ceives a final payment exemption (discussed U.S. trade or business may be wholly or parti­
edge no relevant information has been omitted.
later). ally exempted from withholding at the statutory
If satisfied with the information provided, the
The amount of pay subject to 30% withhold­ rate if an agreement has been reached between
Commissioner or his delegate will determine
ing may be reduced by the personal exemption the Commissioner or his delegate and the alien
the amount of the alien's tentative income tax
amount if the alien gives you a properly comple­ as to the amount of withholding required. This
for the tax year on gross income effectively con­
ted Form 8233. A nonresident alien is allowed agreement will be effective for payments cov­
nected with the conduct of a U.S. trade or busi­
only one personal exemption. However, individ­ ered by the agreement that are made after the
ness. Ordinary and necessary business expen­
uals who are residents of Canada, Mexico, or agreement is executed by all parties. The alien
ses may be taken into account if proved to the
South Korea, or are U.S. nationals generally are must agree to timely file an income tax return for
satisfaction of the Commissioner or his dele­
entitled to the same exemptions as U.S. citi­ the current tax year.
gate.
zens. See Publication 519 for the current year Final payment exemption. The final pay­ The Commissioner or his delegate will pro­
personal exemption amounts. ment of compensation for independent per­ vide the alien with a letter to you, the withhold­
Students and business apprentices covered sonal services may be wholly or partially ex­ ing agent, stating the amount of the final pay­
by Article 21(2) of the United States­India in­ empt from withholding at the statutory rate. This ment of compensation for personal services
come tax treaty may claim an additional exemp­ exemption applies to the last payment of com­ that is exempt from withholding, and the
tion for their spouse if a joint return is not filed, pensation, other than wages, for personal serv­ amount that would otherwise be withheld that
and if the spouse has no gross income for the ices rendered in the United States that the alien may be paid to the alien due to the exemption.
year and is not the dependent of another tax­ expects to receive from any withholding agent The amount of pay exempt from withholding
payer. They also may claim additional exemp­ during the tax year. cannot be more than $5,000. The alien must
tions for children who reside with them in the To obtain the final payment exemption, the give two copies of the letter to you and must
United States at any time during the year, but alien, or the alien's agent, must file the forms also attach a copy of the letter to his or her in­
only if the dependents are U.S. citizens or na­ and provide the information required by the come tax return for the tax year for which the
tionals or residents of the United States, Can­ Commissioner or his delegate. This information exemption is effective.
ada, or Mexico. They may not claim exemptions
for dependents who are admitted to the United Travel expenses. If you pay or reimburse
States on “F­2,” “J­2,” or “M­2” visas unless the travel expenses of a nonresident alien, the
such dependents have become resident aliens. payments are not reportable to the IRS and are

Page 34 Publication 515 (2017)

not subject to chapter 3 withholding if the pay­ ployee asks you to by giving you a completed Two special definitions of employer that may
ments are made under an accountable plan as Form W­4. have considerable application to nonresident
described in section 1.62­2 of the regulations. Pay for personal services that is not subject aliens are:
This treatment applies only to that part of a pay­ to withholding is not subject to reporting on An employer includes any person paying
ment that represents the payment of travel and Form 1042­S. If the compensation is more than wages for a nonresident alien individual,
lodging expenses and not to that part that rep­ $600, report it on Form W­2 (if the employee foreign partnership, or foreign corporation
resents compensation for independent personal gave you a TIN) or on Form 1099­MISC (if the not engaged in trade or business in the
services. employee did not give you a TIN). United States (including Puerto Rico as if a
For more information on withholding on for­ part of the United States), and
Tax treaties. Under some tax treaties, pay An employer includes any person who has
eign agricultural workers, go to IRS.gov and en­
for independent personal services performed in control of the payment of wages for serv­
ter “agricultural workers” in the search box.
the United States is treated as business income ices that are performed for another person
and taxed according to the treaty provisions for who does not have that control.
Employer­employee relationship. For pay
business profits.
for personal services to qualify as wages, there For example, if a trust pays wages, such as
Under other tax treaties, pay for independ­
must be an employer­employee relationship. certain types of pensions, supplemental unem­
ent personal services performed in the United
States is exempt from U.S. income tax only if Under the common law rules, every individ­ ployment pay, or retired pay, and the person for
the independent nonresident alien contractor ual who performs services subject to the will whom the services were performed has no legal
performs the services during a period of tempo­ and control of an employer, both as to what control over the payment of the wages, the trust
rary presence in the United States (usually not shall be done and how it shall be done, is an is the employer.
more than 183 days) and is a resident of the employee. It does not matter that the employer These special definitions have no effect
treaty country. allows the employee considerable discretion upon the relationship between an alien em­
Independent nonresident alien contractors and freedom of action, as long as the employer ployee and the actual employer when determin­
use Form 8233 to claim an exemption from has the legal right to control both the method ing whether the pay received is considered to
withholding under a tax treaty. For more infor­ and the result of the services. be wages.
mation, see Form 8233, earlier. If an employer­employee relationship exists,
it does not matter what the parties call the rela­ If an employer­employee relationship exists,
Form 8233 should be used to claim a tionship. It does not matter if the employee is the employer ordinarily must withhold the in­
TIP treaty benefit based on a business called a partner, coadventurer, agent, or inde­ come tax from wage payments by using the
profits provision or an independent per­ pendent contractor. It does not matter how the percentage method or wage bracket tables as
sonal services provision. pay is measured, how the individual is paid, or shown in Publication 15 (Circular E).
Often, you must withhold under the statutory what the payments are called. Nor does it mat­
rules on payments made to a treaty country res­ ter whether the individual works full­time or Pay that is not wages. Employment for which
ident contractor for services performed in the part­time. the pay is not considered wages (for graduated
United States. This is because the factors on The existence of the employer­employee re­ income tax withholding) includes, but is not limi­
which the treaty exemption is based may not be lationship under the usual common law rules ted to, the following items.
determinable until after the close of the tax will be determined, in doubtful cases, by an ex­ Agricultural labor if the total cash wages
year. The contractor must then file a U.S. in­ amination of the facts of each case. paid to an individual worker during the year
come tax return (Form 1040NR) to recover any is less than $150 and the total paid to all
Employee. An employee generally in­ workers during the year is less than
overwithheld tax by providing the IRS with proof
cludes any individual who performs services if $2,500. But even if the total amount paid to
that he or she is entitled to a treaty exemption.
the relationship between the individual and the all workers is $2,500 or more, wages of
person for whom the services are performed is less than $150 per year paid to a worker
Wages Paid to Employees— the legal relationship of employer and em­ are not subject to income tax withholding if
Graduated Withholding ployee. This includes an individual who re­ certain conditions are met. For these con­
ceives a supplemental unemployment pay ben­ ditions, see Publication 51 (Circular A).
Salaries, wages, bonuses, or any other pay for efit that is treated as wages. Services of a household nature performed
personal services (referred to collectively as in or about the private home of an em­
wages) paid to nonresident alien employees are No distinction is made between classes
ployer, or in or about the clubrooms or
subject to graduated withholding in the same of employees. Superintendents, managers,
house of a local college club, fraternity, or
way as for U.S. citizens and residents if the wa­ and other supervisory personnel are employ­
sorority. A local college club, fraternity, or
ges are effectively connected with the conduct ees. In most cases, an officer of a corporation is
sorority does not include an alumni club or
of a U.S. trade or business. Any wages paid to an employee, but a director acting in this ca­
chapter and may not be operated primarily
a nonresident alien for personal services per­ pacity is not. An officer who does not perform
as a business enterprise. Examples of
formed as an employee for an employer are any services, or only minor services, and nei­
these services include those performed as
generally not subject to the 30% withholding if ther receives nor is entitled to receive any pay is
a cook, janitor, housekeeper, governess,
the wages are subject to graduated withholding. not considered an employee.
gardener, or houseparent.
Employer. An employer is any person or Certain services performed outside the
Also, the 30% withholding does not apply to organization for whom an individual performs or course of the employer's trade or business
pay for personal services performed as an em­ has performed any service, of whatever nature, for which cash payment is less than $50 for
ployee for an employer if it is effectively connec­ as an employee. The term “employer” includes the calendar quarter.
ted with the conduct of a U.S. trade or business not only individuals and organizations in a trade Services performed as an employee of a
and is specifically exempted from the definition or business, but organizations exempt from in­ foreign government, without regard to citi­
of wages. Chapter 4 withholding does not apply come tax, such as religious and charitable or­ zenship, residence, or where services are
to these payments. See Pay that is not wages, ganizations, educational institutions, clubs, so­ performed. These include services per­
later. cial organizations, and societies. It also formed by ambassadors, other diplomatic
includes the governments of the United States, and consular officers and employees, and
Special rule for certain agricultural work­ the states, Puerto Rico, and the District of Co­ nondiplomatic representatives. They do
ers. The 30% withholding does not apply to lumbia, as well as their agencies, instrumentali­ not include services for a U.S. or Puerto
pay for personal services performed by a for­ ties, and political subdivisions. Rican corporation owned by a foreign gov­
eign agricultural worker in the United States on ernment.
an H­2A visa. However, if the total wages are Services performed within or outside the
$600 or more and the worker does not give you United States by an employee or officer
a TIN, you may need to backup withhold. You (regardless of citizenship or residence) of
may withhold at graduated rates if the em­

Publication 515 (2017) Page 35

 an international organization designated Determining amount to withhold. Employers ployer's Annual Federal Unemployment (FUTA)
under the International Organizations Im­ are required to add an amount to the wages of a Tax Return. Only the employer pays this tax; it
munities Act. nonresident alien employee solely for the pur­ is not deducted from the employee's wages. In
Services performed by a duly ordained, pose of calculating income tax withholding. The certain cases, wages paid to students and rail­
commissioned, or licensed minister of a specific amounts depend on the payroll period. road and agricultural workers are exempt from
church, but only if performed in the exer­ These amounts can be found in Withholding FUTA tax. For more information, see the in­
cise of the ministry and not as an em­ Adjustment for Nonresident Aliens in chapter 9 structions for Form 940.
ployee of the United States, a U.S. posses­ of Publication 15 (Circular E). This adjustment Wages paid to nonresident alien students,
sion, or a foreign government, or any of does not apply to students and business ap­ teachers, researchers, trainees, and other non­
their political subdivisions. These also in­ prentices from India. resident aliens in “F­1,” “J­1,” “M­1,” or “Q” non­
clude services performed by a member of immigrant status are not subject to FUTA tax.
Do not include the additional amount
a religious order in carrying out duties re­
! on the employee's Form W­2, Wage
quired by that order. Pay for dependent personal services (In­
and Tax Statement.
Tips paid to an employee if they are paid in come Code 18). Dependent personal services
CAUTION

any medium other than cash or, if in cash, are personal services performed in the United
they amount to less than $20 in any calen­ Reporting requirements for wages and States by a nonresident alien individual as an
dar month in the course of employment. withheld taxes paid to nonresident aliens. employee rather than as an independent con­
The employer must report the amount of wages tractor.
Services performed outside the United and deposits of withheld income and social se­ Pay for dependent personal services is sub­
States. Compensation paid to a nonresident curity and Medicare taxes by filing Form 941. ject to chapter 3 withholding and reporting as
alien (other than a resident of Puerto Rico, dis­ Household employers should see Publication follows.
cussed later) for services performed outside the 926, Household Employer's Tax Guide, for in­
United States is not considered wages and is formation on reporting and paying employment Graduated rates. Ordinarily, you must
not subject to withholding. taxes on wages paid to household employees. withhold on pay (wages) for dependent per­
sonal services using graduated rates. The non­
Withholding exemptions. The amount of wa­ Form W­2. The employer also must report resident alien must complete Form W­4 as dis­
ges subject to graduated withholding may be on Form W­2 the wages subject to chapter 3 cussed earlier under Special instructions for
reduced by the personal exemption amount. withholding and the withheld taxes. You must Form W­4, and you must report wages and in­
The personal exemptions allowed in figuring give copies of this form to the employee. If the come tax withheld on Form W­2. However, you
wages subject to graduated withholding are the employee submits Form 8233 to claim exemp­ do not have to withhold if any of the following
same as those discussed earlier under Pay for tion from withholding under a tax treaty, the wa­ four exceptions applies.
independent personal services, except that an ges are reported on Form 1042­S and not in
employee must claim them on Form W­4. box 1 of Form W­2. Wages exempt under a tax Exception 1. Compensation paid for labor
treaty may still be reported in the state and local or personal services performed in the United
Special instructions for Form W­4. A wages boxes of Form W­2 if such wages are States is deemed not to be income from sour­
nonresident alien subject to wage withholding subject to state and local taxation. For more in­ ces within the United States and is exempt from
must give the employer a completed Form W­4 formation, see the instructions for these forms. U.S. income tax if:
to enable the employer to figure how much in­
come tax to withhold. 1. The labor or services are performed by a
Trust fund recovery penalty. If you are a per­
nonresident alien temporarily present in
A nonresident alien cannot claim ex­ son responsible for withholding, accounting for,
the United States for a period or periods
emption from withholding on Form or depositing or paying employment taxes, and
!
CAUTION W­4. Use Form 8233 to claim a tax willfully fail to do so, you can be held liable for a
not exceeding a total of 90 days during the
tax year;
treaty exemption from withholding. See Form penalty equal to the full amount of the unpaid
8233, earlier. trust fund tax, plus interest. A responsible per­ 2. The total pay does not exceed $3,000;
son for this purpose can be an officer of a cor­ and
In completing Form W­4, nonresident aliens poration, a partner, a sole proprietor, or an em­
should use the following instructions instead of 3. The pay is for labor or services performed
ployee of any form of business. A trustee or
the instructions on Form W­4. as an employee of, or under a contract
agent with authority over the funds of the busi­
with:
1. Check “Single” on line 3 (regardless of ac­ ness can also be held responsible for the pen­
tual marital status). alty. a. A nonresident alien individual, foreign
“Willfully” in this case means voluntarily, partnership, or foreign corporation
2. Claim only one withholding allowance on consciously, and intentionally. You are acting that is not engaged in a trade or busi­
line 5, unless a resident of Canada, Mex­ willfully if you pay other expenses of the busi­ ness in the United States, or
ico, or South Korea, or a U.S. national. ness instead of the withholding taxes. b. A U.S. citizen or resident alien individ­
3. Write “Nonresident Alien” or “NRA” above ual, a domestic partnership, or a do­
the dotted line on line 6. Social security and Medicare tax. The em­ mestic corporation, if the labor or
ployer generally must also withhold FICA and services are performed for an office or
Also see Notice 1392, Supplemental Form file Form 941, Employer's Quarterly Federal Tax
W­4 Instructions for Nonresident Aliens. place of business maintained in a for­
Return. In certain cases, wages paid to stu­ eign country or in a possession of the
Nonresident alien employees are not dents and railroad and agricultural workers are United States by this individual, part­
TIP required to request an additional with­ exempt from FICA. Wages paid to nonresident nership, or corporation.
holding amount, but they can choose to alien students, teachers, researchers, trainees,
have an additional amount withheld on line 6. and other nonresident aliens in “F­1”, “J­1”, If the total pay is more than $3,000, the en­
M­1”, or “Q” nonimmigrant status are not sub­ tire amount is income from sources in the Uni­
Students and business apprentices from ject to FICA. See Publication 15, Employer’s ted States and is subject to U.S. tax.
India. Students and business apprentices who Tax Guide, for the rules on withholding.
are eligible for the benefits of Article 21(2) of the In addition to withholding Medicare tax at Also, compensation paid for labor or serv­
United States­India income tax treaty can claim 1.45%, you must withhold a 0.9% Additional ices performed in the United States by a non­
additional withholding allowances on line 5 for Medicare Tax from wages you pay in excess of resident alien in connection with the individual's
their spouses. In addition, they can claim an ad­ $200,000 in a calendar year. See Publication 15 temporary presence in the United States as a
ditional withholding allowance for each depend­ for more information. regular member of the crew of a foreign vessel
ent who has become a resident alien. engaged in transportation between the United
Federal unemployment tax (FUTA). The em­
ployer must pay FUTA and file Form 940, Em­

Page 36 Publication 515 (2017)

States and a foreign country or a U.S. posses­ Compensation paid for either of the follow­ teaching at the university are exempt from so­
sion is not income from sources within the ing types of services is not subject to withhold­ cial security and Medicare taxes. The wages
United States. ing if the alien does not expect to be a resident earned at the chemical company are subject to
of Puerto Rico during the entire tax year. social security and Medicare taxes.
Exception 2. Compensation paid by a for­ Services performed outside the United If an alien is considered a resident alien, as
eign employer to a nonresident alien for the pe­ States but not in Puerto Rico by a nonresi­ discussed earlier, that pay is subject to social
riod the alien is temporarily present in the Uni­ dent alien who is a resident of Puerto Rico security and Medicare taxes even though the
ted States on an “F,” “J,” or “Q” visa is exempt for an employer other than the United alien is still in one of the nonimmigrant statuses
from U.S. income tax. For this purpose, a for­ States or one of its agencies; or mentioned above. This rule also applies to
eign employer means: Services performed outside the United FUTA (unemployment) taxes paid by the em­
A nonresident alien individual, foreign part­ States by a nonresident alien who is a resi­ ployer. Teachers, researchers, and other em­
nership, or foreign corporation, or dent of Puerto Rico, as an employee of the ployees temporarily present in the United
An office or place of business maintained United States or any of its agencies. States on other nonimmigrant visas or in refu­
in a foreign country or in a U.S. possession gee or asylee immigration status are fully liable
by a domestic corporation, a domestic To qualify for the exemption from withhold­
for social security and Medicare taxes unless
partnership, or an individual U.S. citizen or ing for any tax year, the employee must give the
an exemption applies from one of the totaliza­
resident. employer a statement showing the employee's
tion agreements in force between the United
name and address and certifying that the em­
States and several other nations.
ployee:
You can exempt the payment from withhold­
Is not a citizen or resident of the United The Social Security Administration
ing if you can reliably associate the payment
States, and publishes the complete texts and ex­
with a Form W­8BEN containing the taxpayer
Is a resident of Puerto Rico who does not planatory pamphlets of the totalization
identification number of the payee.
expect to be a resident for that entire tax agreements, which are available by calling
Exception 3. Compensation paid to certain year. 1­800­772­1213 or by visiting the Social Secur­
residents of Canada or Mexico who enter or The statement must be signed and dated by the ity Administration web site
leave the United States at frequent intervals is employee and contain a written declaration that at:www.socialsecurity.gov/international.
not subject to withholding. These aliens must it is made under penalties of perjury.
either: Tax treaties. Under most tax treaties, pay
Perform duties in transportation services Tax treaties. Pay for dependent personal for teaching or research is exempt from U.S. in­
(such as a railroad, bus, truck, ferry, services under some tax treaties is exempt from come tax and from withholding for a specified
steamboat, aircraft, or other type) between U.S. income tax only if both the employer and period of time when paid to a professor,
the United States and Canada or Mexico; the employee are treaty country residents and teacher, or researcher who was a resident of
or the nonresident alien employee performs the the treaty country immediately prior to entry into
Perform duties connected with an interna­ services while temporarily living in the United the United States and who is not a citizen of the
tional project, relating to the construction, States (usually for not more than 183 days). United States. The U.S. educational institution
maintenance, or operation of a waterway, Other treaties provide for exemption from U.S. paying the compensation must report the
viaduct, dam, or bridge crossed by, or tax on pay for dependent personal services if amount of compensation paid each year which
crossing, the boundary between the United the employer is any foreign resident and the is exempt from tax under a tax treaty on Form
States and Canada or the boundary be­ employee is a treaty country resident and the 1042­S. See Tax Treaties, later, for information
tween the United States and Mexico. nonresident alien employee performs the serv­ about treaty benefits. The employer should also
ices while temporarily in the United States. See report the compensation in the state and local
To qualify for the exemption from withhold­
Tax Treaties, later, for information about treaty wages boxes of Form W­2 if the wages are sub­
ing during a tax year, a Canadian or Mexican
benefits. ject to state and local taxes, or in the social se­
resident must give the employer a statement
with the employee's name, address, and identi­ curity and Medicare wages boxes of Form W­2
Pay for teaching (Income Code 19). This if the wages are subject to social security and
fication number, and certifying that the resident:
category is given a separate income code num­ Medicare taxes.
Is not a U.S. citizen or resident;
ber because some tax treaties provide at least Claimants must give you either Form
Is a resident of Canada or Mexico, which­
partial exemption from withholding and from W­8BEN or 8233, as applicable, to obtain these
ever applies; and
U.S. tax. Pay for teaching means payments to a treaty benefits.
Expects to perform the described duties
nonresident alien professor, teacher, or re­
during the tax year in question.
searcher by a U.S. university or other accredi­ Pay during studying and training (Income
The statement can be in any form, but it ted educational institution for teaching or re­ Code 20). This category refers to pay (as con­
must be dated and signed by the employee and search work at the institution. trasted with remittances, allowances, or other
must include a written declaration that it is forms of scholarships or fellowship grants—see
made under penalties of perjury. Graduated rates. Graduated withholding
Scholarships and Fellowship Grants, earlier) for
of income tax usually applies to all wages, sal­
personal services performed while a nonresi­
Canadian and Mexican residents em­ aries, and other pay for teaching and research
dent alien is temporarily in the United States as
ployed entirely within the United States. paid by a U.S. educational institution during the
a student, trainee, or apprentice, or while ac­
Neither the transportation service exception nor period the nonresident alien is teaching or per­
quiring technical, professional, or business ex­
the international projects exception applies to forming research at the institution.
perience.
the pay of a resident of Canada or Mexico who
is employed entirely within the United States Social security and Medicare tax. A non­
Graduated rates. Wages, salaries, or
and who commutes from a home in Canada or resident alien temporarily in the United States
other compensation paid to a nonresident alien
Mexico to work in the United States. If an indi­ on an “F­1,” “J­1,” “M­1,” or “Q­1” visa is not
student, trainee, or apprentice for labor or per­
vidual works at a fixed point or points in the Uni­ subject to social security and Medicare taxes
sonal services performed in the United States
ted States (such as a factory, store, office, or on pay for services performed to carry out the
are subject to graduated withholding.
designated area or areas), the wages for serv­ purpose for which the alien was admitted to the
ices performed as an employee for an employer United States. Social security and Medicare Social security and Medicare tax. A
are subject to graduated withholding. taxes should not be withheld or paid on this nonresident alien temporarily in the United
amount. States on an “F­1,” “J­1,” “M­1,” or “Q­1” visa is
Exception 4. Compensation paid for serv­ not subject to social security and Medicare
ices performed in Puerto Rico by a nonresident Example. A nonresident alien is issued a taxes on pay for services performed to carry out
alien who is a resident of Puerto Rico for an em­ visa to teach for a university. While in the United the purpose for which the alien was admitted to
ployer (other than the United States or one of its States, he takes a part­time job working for a the United States. Social security and Medicare
agencies) is not subject to withholding. chemical company. The wages earned while taxes should not be withheld or paid on this

Publication 515 (2017) Page 37

amount. This exemption from social security tax at graduated rates on payments to artists athlete. This is because the exemption may be
and Medicare taxes also applies to employment and athletes for services performed as employ­ based upon factors that cannot be determined
performed under Curricular Practical Training ees. See Pay for dependent personal services, until after the end of the year.
and Optional Practical Training, on or off cam­ earlier, for more information. However, in any
pus, by foreign students in “F­1,” “J­1,” “M­1,” or situation where the nature of the relationship
“Q” status as long as the employment is author­ between the payer of the income and the artist
Other Income
ized by the U.S. Citizenship and Immigration or athlete is not ascertainable, you should with­
For the discussion of Income Codes 24, 25, and
Services. hold at a rate of 30%.
26, see U.S. Real Property Interest, later. For
the discussion of Income Code 27, see Publicly
Example. A nonresident alien is admitted Income Code 43. Nonresident alien entertain­
Traded Partnerships, later.
to the United States to study surveying. As part ers and athletes who perform or participate in
of her course, she apprentices to a surveyor. events in the United States can request a CWA
Gambling winnings (Income Code 28). In
She also works part time at a restaurant to sup­ for a lower rate of withholding. A CWA is an
general, nonresident aliens are subject to chap­
plement her income. The wages she earns as agreement entered into by the athlete or enter­
ter 3 withholding at 30% on the gross proceeds
an apprentice are not subject to social security tainer, a designated withholding agent, and the
from gambling won in the United States if that
and Medicare taxes. The wages and tips she IRS. Under no circumstances will a CWA re­
income is not effectively connected with a U.S.
earns at the restaurant are subject to social se­ duce taxes withheld to less than the anticipated
trade or business and is not exempted by
curity and Medicare taxes. amount of income tax liability.
treaty. The tax withheld and winnings are re­
If an alien is considered a resident alien, as Nonresident alien entertainers or athletes portable on Forms 1042 and 1042­S. Chapter 4
discussed earlier, that pay is subject to social requesting a CWA must submit a written appli­ withholding does not apply to these proceeds.
security and Medicare taxes even though the cation and appropriate attachments. Use Form
No tax is imposed on nonbusiness gambling
alien is still in one of the nonimmigrant statuses 13930, Application for Central Withholding
mentioned above. This rule also applies to income a nonresident alien wins playing black­
Agreement, and its instructions to apply for a
jack, baccarat, craps, roulette, or big­6 wheel in
FUTA (unemployment) taxes paid by the em­ CWA.
the United States. A Form W­8BEN is not re­
ployer. The designated withholding agent must quired to obtain the exemption from withhold­
Any student who is enrolled and regularly at­ agree to withhold income tax from payments ing, but a Form W­8BEN may be required for
tending classes at a school may be exempt made to the nonresident alien, to pay over the purposes of Form 1099 reporting and backup
from social security, Medicare, and FUTA taxes withheld tax to the IRS on the dates and in the withholding. Gambling income that is not sub­
on pay for services performed for that school. amounts specified in the agreement, and to ject to chapter 3 withholding is not subject to re­
See Publication 15 (Circular E). have the IRS apply the payments of withheld porting on Form 1042­S.
tax to the withholding agent's Form 1042 ac­
Tax treaties. Certain tax treaties provide a Nonresident aliens are taxed at graduated
count. The designated withholding agent will be
limited exemption from U.S. income tax and rates on net gambling income won in the U.S.
required to file Form 1042 and Form 1042­S for
from withholding on compensation paid to non­ that is effectively connected with a U.S. trade or
each tax year in which income is paid to a non­
resident alien students or trainees during train­ business.
resident alien covered by the CWA. The desig­
ing in the United States for a limited period. In
nated withholding agent will issue Form 1042­S Tax treaties. Gambling income of resi­
addition, some treaties provide an exemption
to each nonresident alien athlete and enter­ dents (as defined by treaty) of the following for­
from tax and withholding for compensation paid
tainer affected by the agreement. eign countries is not taxable by the United
by the U.S. Government or its contractor to a
nonresident alien student or trainee who is tem­ States: Austria, Belgium, Bulgaria, Czech Re­
A request for a CWA must be received
porarily present in the United States as a partic­ public, Denmark, Finland, France, Germany,
at the following address at least 45
ipant in a program sponsored by the U.S. Gov­ Hungary, Iceland, Ireland, Italy, Japan, Latvia,
days before the agreement is to take
ernment. See Tax Treaties, later, for information Lithuania, Luxembourg, Netherlands, Russia,
effect, and must contain all supporting docu­
about treaty benefits. However, a withholding Slovak Republic, Slovenia, South Africa, Spain,
mentation specified in the instructions or no
agent who is a U.S. resident, a U.S. Govern­ Sweden, Tunisia, Turkey, Ukraine, and the Uni­
consideration will be given to entering into a
ment agency, or its contractor must report the ted Kingdom.
CWA. Exceptions will be considered on a case
amount of pay on Form 1042­S. Gambling income of residents of Malta is
by case basis.
Claimants must give you either Form taxed at 10%.
W­8BEN or 8233, as applicable, to obtain these Central Withholding Agreement Program Claimants must give you a Form W­8BEN
treaty benefits. Internal Revenue Service (with a U.S. or foreign TIN) to claim treaty bene­
Mail Stop: 1441 fits on gambling income that is not effectively
connected with a U.S. trade or business. See
Artists and Athletes 2001 Butterfield Rd.
Downer's Grove, IL 60515­1050 U.S. Taxpayer Identification Numbers, later, for
(Income Codes 42 and 43) when you can accept a Form W­8BEN without a
TIN.
Because many tax treaties contain a provision
for pay to artists and athletes, a separate cate­ For more information on the CWA program, go Transportation income. U.S. source gross
gory is assigned these payments for chapter 3 to www.irs.gov/Individuals/International­ transportation income (USSGTI), as defined in
withholding purposes. This category includes Taxpayers/Central­Withholding­Agreements. section 887, is not subject to 30% gross with­
payments made for performances by public en­ holding tax, and chapter 4 withholding does not
Tax treaties. Under many tax treaties, com­ apply to this income. Transportation income is
tertainers (such as theater, motion picture, ra­
pensation paid to public entertainers or athletes income from the use of a vessel or aircraft,
dio, or television artists, or musicians) or ath­
for services performed in the United States is whether owned, hired, or leased, or from the
letes.
exempt from U.S. income tax if the artist or ath­ performance of services directly related to the
Use Income Code 42 to report payments to lete derives receipts for the taxable year con­ use of a vessel or aircraft. U.S. source gross
artists and athletes who have not signed a cen­ cerned, including expenses reimbursed to him transportation income includes 50% of all trans­
tral withholding agreement (CWA), discussed or borne on his behalf, not in excess of portation income from transportation that either
later. Use Income Code 43 to report payments $10,000, or in more recent treaties, $20,000. begins or ends in the United States. USSGTI
to artists and athletes who have signed a CWA. See Tax Treaties, later, for information about does not include transportation income of a for­
treaty benefits. eign corporation taxable in a U.S. possession.
Income Code 42. You must withhold tax at a Employees and independent contractors The recipient of USSGTI must pay tax on it an­
30% rate on payments to artists and athletes for may claim an exemption from withholding under nually at the rate of 4% on Section I of Form
services performed as independent contractors. a tax treaty by filing Form 8233. Often, however, 1120­F, unless the income is effectively con­
See Pay for independent personal services, you will have to withhold at the statutory rates nected with the conduct of a U.S. trade or
earlier, for more information. You must withhold on the total payments to the entertainer or

Page 38 Publication 515 (2017)

business and is reportable on Section II of Form Guarantee of indebtedness (Income Code The following types of income received by a
1120­F. Special rules apply to determine if a 41). An amount paid to a foreign payee for the foreign government are subject to chapter 3
foreign corporation's USSGTI is effectively con­ provision of a guarantee of indebtedness is­ withholding.
nected with a U.S. trade or business. sued after September 27, 2010, may be subject
1. Income (including investment income) re­
to chapter 3 withholding. The amounts must be
Canadian truck and rail income. Under ceived from the conduct of a commercial
paid by one of the following:
Article VIII (Transportation) of the U.S.­Canada activity or from sources other than those
treaty, any U.S. source income derived by a 1. A noncorporate U.S. resident, stated above.
Canadian company engaged in the operation of 2. A domestic corporation, or 2. Income received from a controlled com­
trucks or a railway as a common carrier or con­ mercial entity (including gain from the dis­
tract carrier, and attributable to the transporta­ 3. Any foreign person if the amount paid is
position of any interest in a controlled
tion of property between Canada and the Uni­ connected with income that is effectively
commercial entity) and income received
ted States is exempt from tax in the United connected, or treated as effectively con­
by a controlled commercial entity.
States, provided the company is otherwise eligi­ nected, with a U.S. trade or business.
If the foreign government is a partner in
ble for treaty benefits. Payments for the use of a partnership carrying on a trade or busi­
An indirect payment includes a payment by a
trucks (including trailers) or railway rolling stock, ness in the United States, the effectively
foreign bank to a foreign corporation for the for­
or from the use, maintenance, or rental of con­ connected income allocable to the foreign
eign corporation's guarantee of indebtedness
tainers (including trailers and related equipment government is considered derived from a
owed to the foreign bank by the foreign corpo­
for the transport of containers) used to transport controlled commercial activity and is sub­
ration's domestic subsidiary, where the cost of
property between Canada and the United ject to withholding under section 1446.
the guarantee fee is passed on to the domestic
States are also exempt from U.S. tax, provided
subsidiary through additional interest charged 3. Gain derived from the disposition of a U.S.
the company is otherwise eligible for treaty ben­
on the indebtedness. real property interest. Withholding on
efits. Canadian companies must file Form
1120­F and Form 8833 to claim an exemption The amounts described above for a guaran­ these gains is discussed later under U.S.
from tax for profits from their operating income. tee of indebtedness are withholdable pay­ Real Property Interest.
Canadian corporations are subject to chapter 3 ments, such that chapter 4 withholding may ap­
ply absent an exclusion from withholding under For chapter 4 purposes, payments to a for­
withholding on rental payments for the use of
chapter 4. eign government (other than earnings inuring to
such equipment in the United States and may
the benefit of a private person) are not pay­
claim an exemption on Form W8­BEN­E.
Other income (Income Code 23). Use this ments to which chapter 4 withholding applies
Foreign freight charges or rental of category to report U.S. source FDAP income unless the payment is made to a controlled en­
equipment used outside the United States. that is not reportable under any of the other in­ tity of the foreign government that is engaged in
Payments for transportation of property, come categories. Examples of income that may a commercial financial activity. See Treasury
whether by ship, air, or truck, solely between be reportable under this category are commis­ regulations section 1.1471­6(h) for a description
points outside the United States or rental of tan­ sions, insurance proceeds, patronage distribu­ of a commercial financial activity. See Treasury
gible property in connection with transportation tions, prizes, and racing purses. regulations section 1.1471­3(d)(9) for the docu­
solely for use between points outside the United As discussed earlier under Income Subject mentation required to establish an entity’s chap­
States is not U.S. source income and not sub­ to Chapter 3 Withholding, every kind of FDAP ter 4 status as a foreign government. Similar
ject to chapter 3 withholding. income from U.S. sources that is not effectively rules apply for chapter 4 purposes to a payment
connected with a U.S. trade or business is sub­ to a foreign central bank of issue.
Payments to certain expatriates. Certain ject to chapter 3 withholding unless the income
payments to nonresident aliens who are cov­ is specifically exempt under the Code or a tax A government of a U.S. possession is ex­
ered expatriates under section 877A(g)(1) are treaty. You generally must withhold at the 30% empt from U.S. tax on all U.S. source income.
subject to withholding at 30%. In general, non­ rate on this income. As a payment of U.S. This income is not subject to chapter 3 with­
resident aliens are covered expatriates if they source FDAP is generally a withholdable pay­ holding, and chapter 4 withholding does not ap­
were U.S. citizens or long­term residents who ment, you should review Treasury regulations ply to income paid to a government of a U.S.
renounced their citizenship or ceased to be section 1.1473­1(a) (definition of withholdable possession. See Treasury regulations section
long­term residents for U.S. tax purposes after payment) to determine if the payment is exclu­ 1.1471­3(d)(9) for the documentation required
June 16, 2008, and satisfied other tests for ded from the definition of a withholdable pay­ to establish an entity’s chapter 4 status as a
average annual net income tax and net worth. ment. government of a U.S. possession. These gov­
For more information on the definition of cov­ ernments should use Form W­8EXP to claim
ered expatriates, see the Instructions for Form this exemption for both chapters 3 and 4 purpo­
8854. Foreign Governments ses (as required).

Eligible deferred compensation items

(Income Code 38). In general, you must with­
and Certain Other International organizations. International or­
ganizations are exempt from U.S. tax on all U.S.
hold tax at a 30% rate on any payment of an eli­ Foreign Organizations source income. Income paid to an international
gible deferred compensation item. The amount organization (within the meaning of section
subject to tax is the amount of the payment that Investment income earned by a foreign govern­ 7701(a)(18) of the Code) is not subject to chap­
would have been included in the nonresident ment is not included in the gross income of the ter 3 withholding. International organizations
alien's U.S. gross income if he had continued to foreign government and is not subject to chap­ are not required to provide a Form W­8 or docu­
be taxed as a U.S. citizen or resident. ter 3 withholding. Investment income means in­ mentary evidence to receive the exemption if
come from investments in the United States in the name of the payee is one that is designated
Distributions from a nongrantor trust
stocks, bonds, or other domestic securities, fi­ as an international organization by executive or­
(Income Code 39). In general, you must with­
nancial instruments held in the execution of der.
hold tax at a 30% rate on any direct or indirect
governmental financial or monetary policy, and Payments made to an international organi­
distribution from a nongrantor trust. The amount
interest on money deposited by a foreign gov­ zation, as defined for chapter 4 purposes, are
subject to tax is the part of the distribution that
ernment in banks in the United States. A foreign not payments to which chapter 4 withholding
would have been included in the nonresident
government must provide a Form W­8EXP or, applies. An international organization for purpo­
alien's U.S. gross income if he had continued to
in the case of a payment made outside the Uni­ ses of chapter 4 means any entity described in
be taxed as a U.S. citizen or resident. If the non­
ted States to an offshore account, documentary section 7701(a)(18) of the Code. The term also
resident alien was not a beneficiary of the non­
evidence to obtain this exemption. Investment includes any intergovernmental or suprana­
grantor trust on the day before he gave up his
income paid to a foreign government is subject tional organization that is comprised primarily of
U.S. citizenship or long­term residence, you do
to reporting on Form 1042­S. foreign governments, that is recognized as an
not have to withhold tax.
intergovernmental or supranational organization

Publication 515 (2017) Page 39

under certain foreign laws or that has in effect a Any person other than an individual, and have no actual knowledge or reason to
headquarters agreement with a foreign govern­ any individual who is an employer or who know that the documentation is not com­
ment, and whose income does not inure to the is engaged in a U.S. trade or business as a plete or accurate, to the IRS during the first
benefit of private persons. See Treasury regula­ sole proprietor, must have an employer business day after you made the payment.
tions section 1.1471­3(d)(9) for the documenta­ identification number (EIN). Use Form
An acceptance agent is a person who, un­
tion required to establish an entity’s chapter 4 SS­4 to get an EIN.
der a written agreement with the IRS, is author­
status as an international organization.
Under certain circumstances, a finan­ ized to assist alien individuals and other foreign
cial institution may be required to get a persons get ITINs or EINs. For information on
Foreign tax­exempt organizations. A for­ !
CAUTION global intermediary identification num­ the application procedures for becoming an ac­
eign organization that is a tax exempt organiza­
ber (GIIN) for purposes of chapter 4. See ceptance agent, see Revenue Procedure
tion under section 501(c) of the Internal Reve­
Global Intermediary Identification Numbers, 2006­10, 2006­2 I.R.B. 293, available at
nue Code is not subject to a withholding tax on
later. See the Instructions for Form 8957 for in­ www.irs.gov/irb/2006­02_IRB/ar13.html.
amounts that are not income includible under
formation on whether a GIIN is needed. A payment is unexpected if you or the bene­
section 512 of the Internal Revenue Code as
ficial owner could not have reasonably anticipa­
unrelated business taxable income. In addition,
ted the payment during a time when an ITIN
withholdable payments made to a tax­exempt A U.S. or foreign TIN (as applicable) must
could be obtained. This could be due to the na­
organization under section 501(c) of the Internal be on a withholding certificate if the beneficial
ture of the payment or the circumstances in
Revenue Code are not payments to which owner is claiming any of the following.
which the payment is made. A payment is not
chapter 4 withholding applies. Tax treaty benefits (see Exceptions to TIN
considered unexpected solely because the
However, if a foreign organization is a for­ requirement, later).
amount of the payment is not fixed.
eign private foundation, it is subject to a 4% Income is effectively connected with a U.S.
withholding tax on all U.S. source investment in­ trade or business.
Example. Mary, a citizen and resident of
come. For a foreign tax­exempt organization to Exemption for certain annuities (see Pen­
Ireland, visits the United States and wins
claim an exemption from withholding under sions, Annuities, and Alimony, earlier).
$5,000 playing a slot machine in a casino. Un­
chapter 3 or 4 because of its tax exempt status Exemption based on exempt organization
der the treaty with Ireland, the winnings are not
under section 501(c), or to claim withholding at or private foundation status.
subject to U.S. tax. Mary claims the treaty bene­
a 4% rate, it must provide you with a Form In addition, a TIN must be on a withholding cer­ fits by providing a Form W­8BEN to the casino
W­8EXP. However, if a foreign organization is tificate from a person claiming to be any of the upon winning at the slot machine. However, she
claiming an exemption from withholding under following. does not have an ITIN or foreign TIN. The ca­
an income tax treaty, or the income is unrelated Qualified intermediary. sino is an acceptance agent that can request an
business taxable income, the organization must Withholding foreign partnership. ITIN on an expedited basis.
provide a Form W­8BEN­E or W­8ECI. Income Withholding foreign trust. Situation 1. Assume that Mary won the
paid to foreign tax­exempt organizations is sub­ Exempt organization. money on Sunday. Since the IRS does not is­
ject to reporting on Form 1042­S. If the organi­ U.S. branch of a foreign person treated as sue ITINs on Sunday, the casino can pay
zation is a partner in a partnership carrying on a a U.S. person (see section 1.1441­1(b)(2) $5,000 to Mary without withholding U.S. tax.
trade or business in the United States, the ef­ (iv) of the regulations). The casino must, on the following Monday, fax
fectively connected income allocable to the or­ U.S. person. a completed Form W­7 for Mary, including the
ganization is subject to withholding under sec­ required certification, to the IRS for an expedi­
tion 1446. Exceptions to U.S. TIN requirement. A for­ ted ITIN.
eign person does not have to provide a U.S. Situation 2. Assume that Mary won the
Definitions under IGAs. For payments made TIN to claim a reduced rate of withholding under money on Monday. To pay the winnings without
to a reporting Model 1 FFI or reporting Model 2 a tax treaty if the requirements for the following withholding U.S. tax, the casino must apply for
FFI, see the applicable IGA for definitions of en­ exceptions are met. Instead of requesting a and get an ITIN for Mary because an expedited
tities described under this heading. You may U.S. TIN from a foreign payee, you may request ITIN is available from the IRS at the time of the
generally rely on documentation provided by a foreign TIN issued by the payee’s country of payment.
such an FFI to treat an entity as described un­ residence except when the payee is a nonresi­
der this heading (included under the class of a dent alien individual claiming an exemption Foreign TIN. A foreign TIN is required in the
nonreporting IGA FFI). See the instructions for from withholding on Form 8233. case of a withholding agent that is a U.S. finan­
Form W­8BEN­E. Income from marketable securities (dis­ cial institution making a payment to an account
cussed earlier under Beneficial Owners). maintained in the U.S. to the extent required in
Unexpected payment to an individual in the instructions to Form W­8BEN or Form
U.S. or Foreign Taxpayer the case of a payment made by a U.S. fi­ W­8BEN­E (as applicable). Beginning January
Identification Numbers nancial institution to an account main­
tained at a U.S. office (discussed next).
1, 2017, a Form W­8BEN or W­8BEN­E provi­
ded to document an account that is maintained
at a U.S. branch or office of a financial institu­
As the withholding agent, in many cases you Unexpected payment. A Form W­8BEN tion is required to contain the account holder's
must request that the payee provide you with its or a Form 8233 provided by a nonresident alien foreign TIN and, in the case of an individual ac­
U.S. taxpayer identification number (TIN). You to get treaty benefits does not need a U.S. TIN count holder, the account holder's date of birth
must in such a case include the payee's TIN on if you, the withholding agent, meet all the follow­ in order for the withholding agent to treat such
forms, statements, and other tax documents. ing requirements. withholding certificate as valid. Also see Instruc­
The payee's TIN may be any of the following. You are an acceptance agent. tions to the Requester of Forms W­8BEN,
An individual may have a social security You can request an ITIN for a payee on an W­8BEN­E, W­8ECI, W­8EXP, and W­8IMY.
number (SSN). If the individual does not expedited basis.
have and is eligible for an SSN, he or she You are required to make an unexpected
must use Form SS­5, Application for a So­ payment to the nonresident alien. Global Intermediary
cial Security Card, to get an SSN. The So­ You cannot get the ITIN because the IRS is Identification Numbers
cial Security Administration will tell the indi­ not issuing ITINs at the time you make the
vidual if he or she is eligible to get an SSN. payment or at any earlier time after you If you make a withholdable payment to an entity
An individual may have an IRS individual know you have to make the payment. claiming a chapter 4 status as a participating
taxpayer identification number (ITIN). If the You cannot reasonably delay making the FFI, registered deemed­compliant FFI, nonrep­
individual does not have and is not eligible unexpected payment. orting IGA FFI, direct reporting NFFE, spon­
for an SSN, he or she must apply for an You submit a completed Form W­7 for the sored direct reporting NFFE, or a certified
ITIN by using Form W­7. payee, with a certification that you have re­ deemed­compliant FFI that is a sponsored,
viewed the required documentation and

Page 40 Publication 515 (2017)

closely­held investment vehicle, you may be re­ month. If the 15th day is a Saturday, Sun­ EFTPS or to enroll in EFTPS, visit
quired to obtain and verify the entity’s GIIN day, or legal holiday in the District of Co­ www.eftps.gov or call 1­800­555­4477. Addi­
against the published IRS FFI list within 90 days lumbia, you must deposit the taxes by the tional information about EFTPS is also available
to rely on such a claim. For withholdable pay­ next day that is not a Saturday, Sunday, or in Publication 966, The Secure Way to Pay
ments made to certain sponsored FFIs and legal holiday in the District of Columbia. If Your Federal Taxes.
sponsored direct reporting NFFEs, you must you made a deposit of $2,000 or more dur­
Qualified business taxpayers that re­
obtain and verify the GIIN of the sponsoring en­ ing the month (except December) under
tity within 90 days to rely on such a claim. See rule 3 below, carry over any end­of­ TIP quest an EIN will automatically be en­
rolled in EFTPS. They will receive infor­
the Instructions to the Requester of Forms the­month balance of less than $2,000 to
mation on how to activate their account.
W­8BEN, W­8BEN­E, W­8ECI, W­8EXP, and the next month. If you made a deposit of
W­8IMY for further information on the require­ $2,000 or more during December, any
ments for a withholding agent to obtain a GIIN end­of­December balance of less than Note. All payments should be stated in
for chapter 4 purposes, including exceptions $2,000 should be remitted with your Form U.S. dollars and should be made in U.S. dol­
and transition rules applicable to this require­ 1042 by March 15 of the following year. lars.
ment.
3. If at the end of any quarter­monthly period Penalty for failure to make deposits on
the total amount of undeposited taxes is time. If you fail to make a required deposit
Depositing $2,000 or more, you must deposit the
taxes within 3 business days after the end
within the time prescribed, a penalty is imposed
on the underpayment (the excess of the re­
Withheld Taxes of the quarter­monthly period. (A quar­
ter­monthly period ends on the 7th, 15th,
quired deposit over any actual timely deposit for
a period). You can avoid the penalty if you can
22nd, and last day of the month.) A busi­ show that the failure to deposit was for reasona­
This section discusses the rules for depositing
ness day is any day other than a Saturday, ble cause and not because of willful neglect.
income tax withheld on FDAP income, including
Sunday, or legal holiday in the District of Also, the IRS may waive the penalty if certain
tax withheld pursuant to chapter 4. The deposit
Columbia. requirements are met.
rules discussed here do not apply to the follow­
ing items.
Escrow in lieu of deposit. Under certain cir­ Depositing on time. For deposits made by
Taxes on pay subject to graduated with­
cumstances, a withholding agent may be per­ EFTPS to be on time, you must initiate the de­
holding as discussed earlier. (See Form
mitted to set aside a withheld amount in escrow posit by 8 p.m. Eastern time the day before the
941 for the deposit rules.)
rather than depositing the tax. A participating date the deposit is due. If you use a third party
Tax withheld on pensions and annuities
FFI that withholds tax on a withholdable pay­ to make deposits on your behalf, they may have
subject to graduated withholding or the
ment not otherwise subject to chapter 3 with­ different cutoff times.
10% tax on nonperiodic distributions. (See
holding or backup withholding under section
Form 945 for the deposit rules.) Penalty rate. If the deposit is:
3406 made to a recalcitrant account holder of a
Tax withheld on a foreign partner's share 1 to 5 days late, the penalty is 2% of the
dormant account may, in lieu of depositing the
of effectively connected income of a part­ underpayment,
tax withheld, set aside the amount withheld in
nership. See Partnership Withholding on 6 to 15 days late, the penalty is 5%, or
escrow until the date that the account ceases to
Effectively Connected Income, later. 16 or more days late, the penalty is 10%.
be a dormant account. In such case, the tax
Tax withheld on dispositions of U.S. real
withheld becomes due 90 days following the However, if the deposit is not made within 10
property interests by foreign persons. See
date that the account ceases to be a dormant days after the IRS issues the first notice de­
U.S. Real Property Interest, later.
account if the account holder does not provide manding payment, the penalty is 15%.
Taxes on household employees. See
the required documentation, or becomes re­
Schedule H (Form 1040), Household Em­ If you owe a penalty for failing to deposit tax
fundable to the account holder if the account
ployment Taxes, to report social security for more than one deposit period, and you
holder provides documentation establishing
and Medicare taxes, and any income tax make a deposit, your deposit is applied to the
that withholding does not apply. A withholding
withheld, on wages paid to a nonresident most recent period to which the deposit relates
agent that withholds tax under chapter 3 on cer­
alien household employee. unless you designate the deposit period or peri­
tain payments that include an undetermined
amount of income may retain 30 percent of the ods to which your deposit is to be applied. You
When Deposits payment to hold in escrow in accordance with can make this designation only during a 90­day
period that begins on the date of the penalty no­
Are Required Treasury regulations section 1.1441­3(d). Simi­
tice. The notice contains instructions on how to
larly, if a withholding agent is unable to deter­
mine whether the payment is a withholdable make this designation.
A deposit required for any period occurring in
one calendar year must be made separately payment because the source or character of the
from a deposit for any period occurring in an­ payment is unknown, the withholding agent Adjustment for
other calendar year. A deposit of this tax must may retain 30 percent of the payment to hold in
escrow for chapter 4 purposes in accordance
Overwithholding
be made separately from a deposit of any other
type of tax, but you need not identify whether with Treasury regulations section 1.1471­2(a)
What to do if you overwithheld tax depends on
the deposit is of tax withheld under chapter 3 or (5).
when you discover the overwithholding.
4.
Electronic deposit requirement. You must
The amount of tax you are required to with­ Overwithholding discovered by March 15 of
deposit all withheld taxes under chapter 3 or 4
hold determines the frequency of your deposits. following calendar year. If you discover that
by electronic funds transfer. In most cases,
The following rules show how often deposits you overwithheld tax under chapter 3 or 4 by
electronic funds transfers are made using the
must be made. March 15 of the following calendar year, you
Electronic Federal Tax Payment System
may use the undeposited amount of tax to
1. If at the end of a calendar year the total (EFTPS). If you do not want to use EFTPS, you
make any necessary adjustments between you
amount of undeposited taxes is less than can arrange for your tax professional, financial
and the recipient of the income. However, if the
$200, you may either pay the taxes with institution, or other trusted third party to make
undeposited amount is not enough to make any
your Form 1042 or deposit the entire deposits on your behalf. Also, you may arrange
adjustments, or if you discover the overwith­
amount by March 15 of the following cal­ for your financial institution to initiate a
holding after the entire amount of tax has been
endar year. same­day wire payment on your behalf. EFTPS
deposited, you can use either the reimburse­
is a free service provided by the Department of
2. If at the end of any month the total amount ment procedure or the set­off procedure to ad­
Treasury. Services provided by your tax profes­
of undeposited taxes is $200 or more but just the overwithholding.
sional, financial institution, or other third party
less than $2,000, you must deposit the may have a fee. For more information about
taxes within 15 days after the end of the

Publication 515 (2017) Page 41

 amount you would have been required to with­ Any part of a U.S. or foreign partnership's
If March 15 is a Saturday, Sunday, or
hold on later payments you make to that per­ (other than a publicly traded partnership)
TIP legal holiday, the next business day is son. These later payments must be made be­ effectively connected taxable income allo­
the final date for these actions.
fore the earlier of: cable to a foreign partner (see Partnership
The date you actually file Form 1042­S for Withholding on Effectively Connected In­
Reimbursement procedure. Under the re­ the calendar year in which the amount was come, later);
imbursement procedure, you repay the benefi­ overwithheld, or Dispositions of U.S. real property interests
cial owner or payee the amount overwithheld. March 15 of the year after the calendar by foreign persons (see U.S. Real Property
You use your own funds for this repayment. You year in which the amount was overwith­ Interest, later);
must make the repayment by the earlier of held. Pensions, annuities, and certain other de­
March 15 of the year after the calendar year in ferred income reported on Form 1099;
which the amount was overwithheld or the date On Form 1042 and Form 1042­S for the cal­
Income, social security, and Medicare
the Form 1042­S is actually filed with the IRS. endar year in which the amount was overwith­
taxes on wages paid to a household em­
For example, if you overwithhold tax in 2016, held, show the reduced amount as the amount
ployee reported on Schedule H (Form
you must repay the beneficial owner by March required to be withheld.
1040); and
15, 2017. You must keep a receipt showing the
Overwithholding discovered at a later date. Amounts subject to backup withholding un­
date and amount of the repayment and provide
If you discover after March 15 of the following der section 3406, including withholdable
a copy of the receipt to the beneficial owner.
calendar year that you overwithheld tax for the payments that are reportable payments
You may reimburse yourself by reducing any
prior year, do not adjust the amount of tax re­ and that are paid to a recalcitrant account
subsequent deposits you make before the end
ported on Forms 1042­S (and Form 1042) or on holder of a participating FFI or registered
of the year after the calendar year in which the
any deposit or payment for that prior year. Do deemed­compliant FFI that has elected on
amount was overwithheld. The reduction can­
not repay the beneficial owner or payee the its withholding statement for withholding
not be more than the amount you actually re­
amount overwithheld unless you are a withhold­ under section 3406 to apply instead of
paid to the beneficial owner or payee.
ing agent for the payment that is a QI, WP, WT, withholding under chapter 4.
If you will reduce a deposit due in the follow­
ing year, you must show the total tax withheld or participating FFI that is eligible to file a collec­ Forms 1042 and 1042­S must be filed
and the amount actually repaid on a timely filed tive refund on behalf of one or more of its ac­ DUE by March 15 of the year following the
(not including extensions) Form 1042­S for the count holders, partners, beneficiaries, or own­ calendar year in which the income sub­
calendar year in which the amount was over­ ers (as applicable). See the applicable ject to reporting was paid. If March 15 falls on a
withheld. You must state on a timely filed (not agreement of each such entity for details on the Saturday, Sunday, or legal holiday, the due
including extensions) Form 1042 that you are requirements for a collective refund. date is the next business day.
claiming a credit in accordance with Treasury In this situation (other than a collective re­
regulations section 1.6414­1. fund filed by the withholding agent), the recipi­ Form 1042. Every U.S. and foreign withhold­
ent will have to file a U.S. income tax return
Example. James Smith is a resident of the ing agent that is required to file a Form 1042­S
(Form 1040NR, Form 1040NR­EZ, or Form
United Kingdom. In December 2016, domestic also must file an annual return on Form 1042.
1120­F) to claim a refund or credit or, if a tax re­
corporation M paid a dividend of $100 to You must file Form 1042 even if you were not
turn has already been filed, a claim for refund
James, at which time M withheld $30 under required to withhold any income tax under
(Form 1040X or amended Form 1120­F) to re­
chapter 3 and paid the balance of $70 to him. In chapter 3 on the payment, or if the payment is a
cover the amount overwithheld. See Treasury
February 2017, James gave M a valid Form chapter 4 reportable amount.
regulations section 1.1474­5 for the specific re­
W­8BEN. He advises M that under the income quirements that apply to obtain a credit or re­ You must file Form 1042 with the:
tax convention with the United Kingdom, only fund of tax actually withheld under chapter 4. As
$15 should have been withheld from the divi­ described in Notice 2015­10, 2015­20 I.R.B. Ogden Service Center
dend and requests repayment of the $15 over­ 965, the IRS intends to issue regulations provid­ P.O. Box 409101
withheld. Although M Corporation had already ing that an otherwise allowable claim for refund Ogden, UT 84409
deposited the $30, the corporation repaid or credit made by a claimant that is the benefi­
James $15 before the end of February. cial owner of a withheld payment is only availa­
During 2016, M made no other payments ble to the extent that the relevant withholding
from which tax had to be withheld. On its timely agent deposited the amount withheld. See No­ Form 1042­S. Every U.S. and foreign with­
filed 2016 Form 1042, M reports $15 as its total tice 2015­10 at www.irs.gov/irb/2015­20_IRB/ holding agent must file a Form 1042­S for
tax liability and $30 as its total deposits. M re­ ar05.html for additional information. amounts subject to chapter 3 withholding and
quests that the $15 overpayment be credited to chapter 4 reportable amounts unless an excep­
its 2017 Form 1042 rather than refunded. tion applies. The form can be filed electronically
The Form 1042­S that M files for the divi­
dend paid to James in 2016 must show a tax
Returns Required or on paper. A separate Form 1042­S is re­
quired for each recipient of income to whom
withheld of $30 in boxes 7 and 10 and $15 as you made payments during the preceding cal­
Every withholding agent, whether U.S. or for­ endar year regardless of whether you withheld
an amount repaid in box 11. The Form 1042­S
eign, must file Forms 1042 and 1042­S to report or were required to withhold tax. However, if
must show an exemption code in box 4a for an
amounts subject to chapter 3 withholding paid you make a withholdable payment to a nonqua­
exemption from chapter 4 withholding based on
to foreign persons (including persons presumed lified intermediary or a flow­through entity that is
the payee's status.
to be foreign), even if no amount is deducted allocable to a chapter 4 withholding rate pool as
In June 2017, M made payments from which
and withheld from the payment under chapter 3, indicated on a withholding statement upon
it withheld tax of $200. On July 15, 2017, M de­
and payments to which chapter 4 withholding is which you may rely with respect to the payment
posited $185, that is, $200 less the $15 credit
applied or which are allocated on an applicable allocable to such a pool, you should complete a
claimed on its Form 1042 for 2016. M timely
withholding statement provided by a participat­ separate Form 1042­S for each chapter 4 with­
filed its Form 1042 for 2017, showing tax liability
ing FFI or registered deemed­compliant FFI to a holding rate pool (i.e., pool of recalcitrant ac­
of $200, $185 deposited, and $15 credit from
chapter 4 withholding rate pool of U.S. payees count holders, pool of nonparticipating FFIs,
2016.
(chapter 4 reportable amounts). Do not use pool of payees that are U.S. persons), treating
Set­off procedure. Under the set­off pro­ Forms 1042 and 1042­S to report tax withheld the intermediary or flow­through entity as the re­
cedure, you repay the beneficial owner or on the following: cipient (and the applicable pool as the chapter 4
payee the amount overwithheld by reducing the Wages, salaries, or other compensation status of the recipient). You need not issue a
reported on Form W­2 (see Wages Paid to Form 1042­S to each recipient included in such
Employees—Graduated Withholding, ear­ pool. You must use a separate Form 1042­S for
lier, under Pay for Personal Services Per­ each type of income that you paid to the same
formed); recipient. See Statements to recipients, later.

Page 42 Publication 515 (2017)

 You must furnish a Form 1042­S for each re­ Deposit interest paid to certain nonresident U.S. account under the FFI’s applicable chap­
cipient even if you did not withhold tax because alien individuals. Interest earned by residents ter 4 requirements or the requirements of an ap­
you repaid the tax withheld to the recipient or of certain foreign countries is subject to infor­ plicable IGA.
because the income payment was exempt from mation reporting. Deposit interest of $10 or
tax under the Internal Revenue Code or under a more paid to any nonresident alien individual Form 8966 must be filed by March 31 of the
U.S. income tax treaty (except for a withholda­ who is a resident of a foreign country with which year following the calendar year in which the
ble payment that is not a chapter 4 reportable the United States has agreed to exchange tax payment is made. An automatic 90­day exten­
amount). information pursuant to an income tax treaty or sion of time to file Form 8966 may be reques­
other convention or bilateral agreement, must ted. To request an automatic 90­day extension
You can use a substitute Form 1042­S if it
be reported on Form 1042­S. of time to file Form 8966, file Form 8809­I, Ap­
meets the requirements listed in Publication
plication for Extension of Time to File FATCA
1179. Paper substitutes that totally conform to Revenue Procedure 2014­64, 2014­53
Form 8966. See the instructions for Form
the format and size of the official form may be I.R.B. 1022, available at www.irs.gov/irb/
8809­I for where to file that form. You should re­
used without prior approval from the IRS. Get 2014­53_IRB/ar11.html identifies those coun­
quest an extension as soon as you are aware
Publication 1179 for more information. tries for which reporting of deposit interest is re­
that an extension is necessary, but no later than
If you are reporting amounts withheld by an­ quired with respect to a resident of any such
the due date for filing Form 8966. Under certain
other withholding agent, Form 1042­S requests country. Revenue Procedure 2015­50, 2015­42
hardship conditions, the IRS may grant an addi­
the name and EIN of the withholding agent that I.R.B. 583, available at www.irs.gov/irb/
2015­42_IRB/ar08.html, Revenue Procedure tional 90­day extension to file Form 8966. To re­
withheld the tax to the extent required in the In­
2016­18, 2016­17 I.R.B. 635, available at quest an additional 90­day extension of time to
structions to Form 1042­S. This information is
www.irs.gov/irb/2016­17_IRB/ar05.html, and file Form 8966, file a second Form 8809­I be­
required for amounts paid in 2015 and subse­
Revenue Procedure 2016­56, 2016­52 I.R.B. fore the end of the initial extended due date.
quent years.
920, available at www.irs.gov/irb/2016­52_IRB/
If you file a substitute for Copy A with Electronic filing requirement for Form 8966.
ar15.html supplement the listing in Revenue
the IRS that does not conform to the An entity that is a financial institution is required
!
CAUTION specifications in Publication 1179, you
Procedure 2014­64. Check IRS.gov for any
to file Form 8966 electronically, irrespective of
changes to the list of countries in Revenue Pro­
may be subject to a penalty for failing to file a the number of Forms 8966 filed. All other enti­
cedure 2014­64 (as supplemented by Revenue
correct return. See Penalties, later. ties that file 250 or more Forms 8966 for the cal­
Procedure 2015­50, Revenue Procedure
endar year are required to electronically file
2016­18, and Revenue Procedure 2016­56),
Joint owners. If all the owners provide Form 8966.
and its date of applicability.
documentation that permits them to receive the To request a waiver from filing Form 8966
same reduced rate of withholding (for example, Note. You may elect to report interest paid electronically, submit Form 8508­I, Request for
under an income tax treaty), you should apply to any nonresident alien. Waiver From Filing Information Returns Elec­
the reduced rate of withholding. You are re­ tronically (For Form 8966). Waiver requests
quired, however, to report the payment on one Statements to recipients. You must furnish a should be filed at least 45 days before the due
Form 1042­S to the person whose status you statement to each recipient for whom you are date of the returns. See the instructions for
rely upon to determine the withholding rate. If, filing a Form 1042­S by the due date for filing Form 8508­I for where to file and additional in­
however, any one of the owners requests its Forms 1042 and 1042­S with the IRS. You may formation. You are encouraged to file electroni­
own Form 1042­S, you must furnish Form use a copy of the official Form 1042­S for this cally even if you are not required to do so. If you
1042­S to the person who requests it. If more purpose. Any substitute forms must comply with are required to file electronically but fail to do
than one Form 1042­S is issued for a single the rules set out in Publication 1179. You must so, and you do not have an approved waiver on
payment, the total amount paid and tax withheld furnish a separate substitute Form 1042­S for record, penalties may apply. For the instruc­
reported on all Forms 1042­S cannot exceed each type of income or payment. The withhold­ tions for filing Form 8966 electronically, see
the total amounts paid to joint owners. In any ing agent must ensure that any substitute Form Publication 5124, FATCA XML Schema v2.0
event, Form 1042­S must not be completed 1042­S Copy B, C, and D, which are provided User Guide.
with more than one of the joint owners as the re­ to the recipient, conforms in format and size to
cipient. the official Form 1042­S and contains the exact Extensions of Time To File
same information as the copy filed with the IRS
Electronic reporting. Withholding agents
or submitted electronically. However, the size of You can request extensions of time to file
or their agents that are required to file 250 or
a substitute Form 1042­S, Copy B, C, and D, Forms 1042 and 1042­S with the IRS and addi­
more Forms 1042­S for the year, and financial
may be adjusted if the substitute form is presen­ tional extensions to furnish Forms 1042­S to re­
institutions (whether U.S. or foreign) without re­
ted on a landscape oriented page instead of cipients.
gard to the 250 threshold must file Forms
portrait. Only one Form 1042­S may be submit­
1042­S electronically. You are encouraged to
ted per page, regardless of orientation. Extension to file Form 1042. You can get an
file electronically even if you are not required to.
A completed Form 4419, Application for Fil­ automatic 6­month extension of time to file
ing Information Returns Electronically (FIRE), Form 8966 Form 1042 by filing Form 7004, Application for
should be filed at least 30 days before the due Automatic Extension of Time To File Certain
date of the return. Returns may not be filed Business Income Tax, Information, and Other
A withholding agent that makes a withholdable
electronically until the application has been ap­ Returns. File Form 7004 on or before the due
payment to a passive NFFE with one or more
proved by the IRS. date of Form 1042. Form 7004 does not extend
substantial U.S. owners (or, in the case of a re­
For information and instructions on filing the time for payment of tax.
porting Model 2 FFI, controlling persons of such
Forms 1042­S electronically, get Publication an entity) or an owner­documented FFI with a Form 7004 extends only the due date
1187, Specifications for Filing Form 1042­S, specified U.S. person owning certain equity or for filing the returns with the IRS. It
Foreign Person's U.S. Source Income Subject debt interests in the FFI must report the pay­
!
CAUTION does not extend the due date for fur­
to Withholding, Electronically. If you file elec­ ment and each such substantial U.S. owner (or nishing statements to recipients.
tronically, you will use the Filing Information Re­ controlling person, as applicable) or specified
turns Electronically (FIRE) system. You get to U.S. person owner of the passive NFFE or
the system through the Internet at fire.irs.gov. Extension to file Form 1042­S with the IRS.
owner documented FFI, respectively, on Form You can get an automatic 30­day extension of
8966 (in addition to reporting the payment and time to file Form 1042­S by filing Form 8809,
Form 1042­T. If Form 1042­S is filed on paper, tax (if any) on Forms 1042 and 1042­S when Application for Extension of Time To File Infor­
it must be filed with Form 1042­T. You may the payment is an amount subject to chapter 3 mation Returns. You should request an exten­
need to file more than one Form 1042­T. See withholding). An exception to the requirement to sion as soon as you are aware that an exten­
the instructions for that form for more informa­ report on Form 8966 applies when the payment sion is necessary, but no later than the due date
tion. is made to an account reported by an FFI as a for filing Form 1042­S. You may request one

Publication 515 (2017) Page 43

additional extension of 30 days by submitting a average annual gross receipts of $5 million or
second Form 8809 before the end of the first
extension period. Requests for an additional ex­
less for the most recent 3 tax years (or for the
period of its existence, if shorter) ending before Partnership Withholding
tension are not automatically granted. Approval
or denial is based on administrative criteria and
the calendar year in which the Forms 1042­S
are due.
on Effectively
guidelines. The IRS will send you a letter of ex­
Exception. No penalty is imposed if the
Connected Income
planation approving or denying your request for
an additional extension. following statements are true.
Under section 1446, a partnership (foreign or
If you are requesting extensions of time 1. You filed Form 1042­S with the IRS on domestic) that has income effectively connec­
to file for more than one withholding time, but it was incorrect or incomplete. ted with a U.S. trade or business (or income
!
CAUTION agent or payer, you must submit the 2. You filed a correct Form 1042­S by
treated as effectively connected) must pay a
extension request electronically. withholding tax on the effectively connected
August 1.
taxable income that is allocable to its foreign
If both statements (1) and (2) are true, the pen­ partners. A publicly traded partnership must
Extension to provide statements to recipi­ alty for filing incorrect returns (but not for filing withhold tax on actual distributions of effectively
ents. You may request an extension of time to late) will not apply to the greater of 10 Forms connected income. See Publicly Traded Part­
provide the statements to recipients by sending 1042­S or 0.50% of the total number of Forms nerships, later. Chapter 4 withholding does not
a letter to Internal Revenue Service; Information 1042­S and any other information returns you apply to this income.
Returns Branch; Attn: Extension of Time Coor­ are required to file with the IRS for the calendar
dinator; 240 Murall Drive, Mail Stop 4360; Kear­ year. This withholding tax does not apply to in­
neysville, WV 25430. The letter must include (a) come that is not effectively connected with the
your name, (b) your TIN, (c) your address, (d) Failure to furnish Form 1042­S to recipient. partnership's U.S. trade or business. That in­
type of return, (e) a statement that your exten­ A penalty may be imposed for failure to provide come may be subject to chapter 3 withholding
sion request is for providing statements to re­ Form 1042­S to the recipient when due (includ­ tax, as discussed earlier in this publication.
cipients, (f) reason for delay, and (g) the signa­ ing extensions) or for failing to provide complete
ture of the payer or authorized agent. Your
request must be postmarked by the date on
and correct information. The amount of the pen­ Who Must Withhold
alty depends on when you provide the correct
which the statements are due to the recipients. Form 1042­S. The penalty for each Form The partnership, or a withholding agent for the
If your request for an extension is approved, 1042­S is: partnership, must pay the withholding tax. A
generally you will be granted a maximum of 30 $50 if you provide the correct Form 1042­S partnership that must pay the withholding tax
extra days to furnish the recipient statements. within 30 days, with a maximum penalty of but fails to do so may be liable for the payment
See Publication 1187. $536,000 per year ($187,500 for a small of the tax and any penalties and interest.
If you are requesting extensions of time business);
to file for recipients of more than 10 $100 if you provide the correct Form The partnership must determine whether a
!
CAUTION withholding agents, you must submit 1042­S after 30 days but by August 1, with partner is a foreign partner. A foreign partner
the extension requests electronically. See Pub­ a maximum penalty of $1,609,000 per year can be a nonresident alien individual, foreign
lication 1187, Part D, section 4, for more infor­ ($536,000 for a small business); or corporation, foreign partnership, foreign estate
mation. $260 if you provide the correct Form or trust, foreign tax­exempt organization, or for­
1042­S after August 1, with a maximum eign government.
penalty of $3,218,500 per year
Penalties ($1,072,500 for a small business). U.S. partner. A partner that is a U.S. person
should provide Form W­9 to the partnership.
If you do not file a correct and complete Form Exception. No penalty is imposed if you A partnership may rely on a partner's certifi­
1042 or Form 1042­S with the IRS on time or if meet all the following requirements. cation of nonforeign status and assume that a
you do not provide a correct and complete 1. You provided a Form 1042­S to a recipient partner is not a foreign partner unless the form:
Form 1042­S to the recipient on time, you may on time, but it was incorrect or incomplete. Does not give the partner's name, U.S. tax­
be subject to a penalty. payer identification number, and address,
2. You provide a correct Form 1042­S to the or
Failure to file Form 1042. The penalty for not recipient by August 1. Is not signed under penalties of perjury
filing Form 1042 when due (including exten­ and dated.
If you satisfy the requirements in (1) and (2)
sions) is usually 5% of the unpaid tax for each
above, the penalty for providing incorrect re­ The partnership must keep the certification
month or part of a month the return is late, but
turns (but not for filing late) will not apply to the for as long as it may be relevant to the partner­
not more than 25% of the unpaid tax.
greater of 10 Forms 1042­S or 0.50% of the to­ ship's liability for section 1446 tax.
tal number of all types of information returns The partnership may not rely on the certifi­
Failure to file correct Form 1042­S. A pen­
you had to provide during the calendar year. cation if it has actual knowledge or has reason
alty may be imposed for failure to file Form
1042­S when due (including extensions) or for to know that any information on the form is in­
Penalty for intentional disregard of require­ correct or unreliable.
failure to provide complete and correct informa­
ments to file or provide returns. If you inten­ If a partnership does not receive a Form
tion. The amount of the penalty depends on
tionally disregard the requirement to file Form W­9 (or similar documentation), the partnership
when you file a correct Form 1042­S. The pen­
1042­S when due, to provide Form 1042­S to must presume that the partner is a foreign per­
alty for each Form 1042­S is:
the recipient when due, or to report correct in­ son.
$50 if you file a correct form within 30
formation, the penalty is the greater of $530 or
days, with a maximum penalty of $536,000
10% of the total amount of the items that must
per year ($187,500 for a small business);
be reported, with no maximum penalty. Foreign Partner
$100 if you file after 30 days but by August
1, with a maximum penalty of $1,609,000 Failure to file electronically. If you are re­ A partner that is a foreign person should pro­
($536,000 for a small business); or quired to file Form 1042­S electronically but you vide the appropriate Form W­8 (as shown in
$260 if you file after August 1 or do not file fail to do so, and you do not have an approved Chart D) to the partnership.
a correct form, with a maximum penalty of waiver, penalties may apply unless you estab­
$3,218,500 per year ($1,072,500 for a lish reasonable cause for your failure. Partners who have otherwise provided Form
small business). W­8 to a partnership for purposes of section
1441 or 1442, as discussed earlier, can use the
Small businesses—lower maximum pen­
same form for purposes of section 1446 if they
alties. A small business is a business that has
meet the requirements discussed earlier under

Page 44 Publication 515 (2017)

Documentation. However, a foreign simple trust 2. The foreign partner's partner­level deduc­ The last day on which the partner owned
that has provided documentation for its benefi­ tions and losses that the partner certifies an interest in the partnership during that
ciaries for purposes of section 1441 must pro­ to the partnership as: year.
vide a Form W­8 on its own behalf for purposes
a. Carried forward from a prior year, The amount treated as distributed to the partner
of section 1446. is generally treated as an advance or draw un­
b. Properly allocated to gross effectively
The partnership may not rely on the certifi­ der Regulations section 1.731­1(a)(1)(ii) to the
connected income of the partner's
cation if it has actual knowledge or has reason extent of the partner's share of income for the
trade or business in the United States,
to know that any information on the form is in­ partnership year.
and
correct or unreliable.
c. Reasonably expected to be available Notification to partners. In most cases, a
The partnership must keep the certification
and claimed on the partner's U.S. in­ partnership must notify each foreign partner of
for as long as it may be relevant to the partner­
come tax return. the tax withheld on its behalf within 10 days of
ship's liability for section 1446 tax.
the installment payment date. No particular
To certify the deductions and losses, a part­ form is required for this notification. For more in­
Chart D. Documentation for ner must submit to the partnership Form formation on the substance of the notification
Foreign Partners* 8804­C, Certificate of Partner­Level Items to and exceptions, see Regulations section
Reduce Section 1446 Withholding. 1.1446­3(d)(1)(i).
THEN provide to If the partner's investment in the partnership
the partnership is the only activity producing effectively connec­ Real property gains. If a domestic partner­
IF you are a: Form: ted income and the section 1446 tax is less ship disposes of a U.S. real property interest,
than $1,000, no withholding is required. The the gain is treated as effectively connected in­
Nonresident alien W­8BEN
partner must provide Form 8804­C to the part­ come and the partnership or withholding agent
Foreign corporation W­8BEN­E nership to receive the exemption from withhold­ must withhold following the rules discussed
Foreign partnership W­8IMY ing. here. A domestic partnership's compliance with
A foreign partner may submit a Form these rules satisfies the requirements for with­
Foreign government W­8EXP 8804­C to a partnership at any time during the holding on the disposition of U.S. real property
Foreign grantor partnership's year and prior to the partnership's interests (discussed later).
trust** W­8IMY filing of its Form 8804. An updated certificate is If a foreign partnership disposes of a U.S.
required when the facts or representations property interest, the transferee must withhold
Certain foreign trust made in the original certificate have changed or under section 1445(a), although the gain also is
or foreign estate W­8BEN a status report is required. treated as effectively connected income. The
Foreign tax­exempt For more information, see the Instructions foreign partnership may credit the amount with­
organization for Form 8804­C. held under section 1445(a) that is allocable to
(including a private foreign partners against its section 1446 tax lia­
foundation) W­8EXP Tax rate. The withholding tax rate on a part­ bility.
ner's share of effectively connected income is
Nominee W­8 used by 39.6% for noncorporate partners and 35% for
beneficial owner corporate partners. However, the partnership
Reporting and Paying the Tax
* A partnership may substitute its own form for the may withhold at the highest rate applicable to a Three forms are required for reporting and pay­
official version of Form W­8 to ascertain the particular type of income allocated to a partner ing over tax withheld on effectively connected
identity of its partners. provided the partnership received the appropri­ income allocable to foreign partners. This does
ate documentation. See Regulations section not apply to publicly traded partnerships, dis­
**A domestic grantor trust must provide a 1.1446­3(a)(2)(ii).
statement as shown in Regulations section
cussed later.
1.1446­1(c)(2)(ii)(E) and documentation for its Installment payments. A partnership must Form 8804, Annual Return for Partnership
grantor. make installment payments of withholding tax Withholding Tax (Section 1446). The with­
on its foreign partners' share of effectively con­ holding tax liability of the partnership for its tax
nected taxable income whether or not distribu­ year is reported on Form 8804. Form 8804 is
Amount of Withholding Tax tions are made during the partnership's tax also a transmittal form for Forms 8805.
year. The amount of a partnership's installment
Any additional withholding tax owed for the
The amount a partnership must withhold is payment is the sum of the installment payments
partnership's tax year is paid (in U.S. currency)
based on its effectively connected taxable in­ for each of its foreign partners. The amount of
with Form 8804.
come that is allocable to its foreign partners for each installment payment can be figured by us­
the partnership's tax year. However, see Pub­ ing Form 8804­W. File Form 8804 by the 15th day of the
licly Traded Partnerships, later. DUE third month after the close of the part­
Date payments are due. Payments of
nership's tax year. If you need more
DUE withholding tax must be made during
Reduction of withholding. The foreign part­ time to file Form 8804, file Form 7004 to request
the partnership's tax year in which the
ner's share of the partnership's gross effectively an extension of time to file. Form 7004 does not
effectively connected taxable income is de­
connected income is reduced by: extend the time to pay the tax.
rived. A partnership must pay the IRS a part of
The partner's share of partnership deduc­
the annual withholding tax for its foreign part­
tions connected to that income for the
ners by the 15th day of the 4th, 6th, 9th, and Form 8805, Foreign Partner's Information
year.
12th months of its tax year for U.S. income tax Statement of Section 1446 Withholding Tax.
The partner's tax treaty benefits related to
purposes. Any additional amounts due are to be Form 8805 is used to show the amount of effec­
that income (see Chart D for documenta­
paid with Form 8804, the annual partnership tively connected taxable income and any with­
tion).
withholding tax return, discussed later. holding tax payments allocable to a foreign
The partnership may reduce the foreign partner for the partnership's tax year. At the end
partner's share of partnership gross effectively of the partnership's tax year, Form 8805 must
A foreign partner's share of withholding tax
connected income by: be sent to each foreign partner on whose behalf
paid by a partnership is treated as distributed to
section 1446 tax was withheld or whose Form
1. State and local income taxes the partner­ the partner on the earliest of:
8804­C the partnership considered, whether or
ship withholds and pays on behalf of the The day on which the tax was paid by the
not any withholding tax is paid. It must be deliv­
partner on current year effectively connec­ partnership,
ered to the foreign partner by the due date of
ted taxable income allocated to the The last day of the partnership's tax year
the partnership return (including extensions). A
partner. for which the tax was paid, or

Publication 515 (2017) Page 45

copy of Form 8805 for each foreign partner also number. See U.S. Taxpayer Identification Num­ 1. Amounts of noneffectively connected in­
must be attached to Form 8804 when it is filed. bers, earlier. come distributed by the partnership and
Also attach the most recent Form 8804­C, dis­ subject to chapter 3 withholding under
cussed earlier, to the Form 8805 filed for the section 1441 or 1442, as discussed ear­
partnership's tax year in which the Form 8804­C
Publicly Traded Partnerships lier.
was considered.
A publicly traded partnership (PTP) that has ef­ 2. Amounts of effectively connected income
A copy of Form 8805 must be attached to not subject to withholding under section
the foreign partner's U.S. income tax return to fectively connected income, gain, or loss must
pay withholding tax on any distributions of that 1446 (for example, amounts exempt by
take a credit on its Form 1040NR or Form treaty).
1120­F. income made to its foreign partners. A PTP
must use Forms 1042 and 1042­S (Income 3. Amounts subject to withholding under
Form 8813, Partnership Withholding Tax Code 27) to report withholding from distribu­ these rules.
Payment Voucher (Section 1446). This form tions. The rate of withholding is 39.6% for non­
corporate partners and 35% for corporate part­ 4. Amounts not listed in (1) through (3).
is used to make payments of withheld tax to the
United States Treasury. Payments must be ners.
made in U.S. currency by the payment dates
(see Date payments are due, earlier). See the A PTP is any partnership an interest in U.S. Real
which is regularly traded on an established se­
Instructions for Form 8804­C for when you must
attach a copy of that form to Form 8813. curities market or is readily tradable on a secon­ Property Interest
dary market. These rules do not apply to a PTP
Penalties. A penalty may be imposed for fail­ treated as a corporation under section 7704 of The disposition of a U.S. real property interest
ure to file Form 8804 when due (including ex­ the Code. by a foreign person (the transferor) is subject to
tensions). It is generally the same as the pen­ income tax withholding under section 1445. If
alty for not filing Form 1042, discussed earlier Foreign partner. The partnership determines you are the transferee, you must find out if the
under Failure to file Form 1042. whether a partner is a foreign partner using the transferor is a foreign person. If the transferor is
rules discussed earlier under Foreign Partner. a foreign person and you fail to withhold, you
A penalty may be imposed for failure to file
may be held liable for the tax.
Form 8805 when due (including extensions) or
Nominee. The withholding agent under this
for failure to provide complete and correct infor­
section can be the PTP or a nominee. For this Foreign person. A foreign person is a nonresi­
mation. The amount of the penalty depends on
purpose, a nominee is a domestic person that dent alien individual, foreign corporation that
when you file a correct Form 8805. The penalty
holds an interest in a PTP on behalf of a foreign has not made an election under section 897(i)
for each Form 8805 is generally the same as
person. The nominee is treated as the withhold­ of the Internal Revenue Code to be treated as a
the penalty for not filing Form 1042­S, dis­
ing agent only to the extent of the amount speci­ domestic corporation, foreign partnership, for­
cussed earlier under Failure to file correct Form
fied in the qualified notice given to the nominee eign trust, or foreign estate. It does not include
1042­S.
by the PTP. If a nominee is designated as the a resident alien individual or, in certain cases, a
If you fail to provide a complete and correct qualified foreign pension fund (see below).
withholding agent, the obligation to withhold is
Form 8805 to each partner when due (including imposed solely on the nominee. The nominee
extensions), a penalty may be imposed. The Transferor. A transferor is any foreign person
must report the distributions and withheld
amount of the penalty depends on when you that disposes of a U.S. real property interest by
amounts on Forms 1042 and 1042­S. For more
provide the correct Form 8805. The penalty for sale, exchange, gift, or any other transfer. A
information, see Regulations section
each Form 8805 is generally the same as the transfer includes distributions to shareholders
1.1446­4(b) and (d).
penalty for not providing a correct and complete of a corporation and beneficiaries of a trust or
Form 1042­S on time, discussed earlier under Distributions subject to withholding. The estate.
Failure to furnish Form 1042­S to recipient. partnership or nominee must withhold tax on The owner of a disregarded entity, not the
Exception. No penalty is imposed if you any actual distributions of money or property to entity, is treated as the transferor of the property
meet certain requirements. The rules are the foreign partners. The amount of the distribution transferred by the disregarded entity.
same as for Form 1042­S. See Exception in includes the amount of any section 1446 tax re­
Failure to file correct Form 1042­S and Excep­ quired to be withheld. In the case of a partner­ Transferee. A transferee is any person, for­
tion in Failure to furnish Form 1042­S to recipi­ ship that receives a partnership distribution eign or domestic, that acquires a U.S. real prop­
ent. from another partnership (a tiered partnership), erty interest by purchase, exchange, gift, or any
If you intentionally disregard the requirement the distribution also includes the tax withheld other transfer.
to file Form 8805 when due, to provide Form from that distribution.
8805 to the recipient when due, or to report cor­ If the distribution is in property other than U.S. real property interest. A U.S. real prop­
rect information, the penalty for each Form money, the partnership cannot release the erty interest is an interest, other than as a cred­
8805 (or statement to recipient) is the greater of property until it has enough funds to pay over itor, in real property (including an interest in a
$530 or 10% of the total amount of the items the withholding tax. mine, well, or other natural deposit) located in
that must be reported, with no maximum pen­ A publicly traded partnership that complies the United States or the U.S. Virgin Islands, as
alty. with these withholding requirements satisfies well as certain personal property that is associ­
the requirements discussed later under U.S. ated with the use of real property (such as farm­
Identification numbers. A partnership that Real Property Interest. Distributions subject to ing machinery). It also means any interest, other
has not been assigned a U.S. EIN must obtain withholding include: than as a creditor, in any domestic corporation
one. If a number has not been assigned by the Amounts subject to withholding under sec­ unless it is established that the corporation was
due date of the first withholding tax payment, tion 1445(e)(1) of the Code on distributions at no time a U.S. real property holding corpora­
the partnership should enter the date the num­ pursuant to an election under Regulations tion during the shorter of the period during
ber was applied for on Form 8813 when making section 1.1445­5(c)(3), and which the interest was held, or the 5­year period
its payment. As soon as the partnership re­ Amounts not subject to withholding under ending on the date of disposition (applicable
ceives its EIN, it must immediately provide that section 1445 of the Code because the dis­ periods). An interest in a corporation is not a
number to the IRS. tributee is a partnership or is a foreign cor­ U.S. real property interest if:
To ensure proper crediting of the withhold­ poration that has made an election to be 1. Such corporation did not hold any U.S.
ing tax when reporting to the IRS, the partner­ treated as a domestic corporation. real property interests on the date of dis­
ship must include each partner's U.S. TIN on position,
Ordering rules. Partnership distributions
Form 8805. If there are partners in the partner­
are considered to be paid out of the following 2. All the U. S. real property interests held by
ship without identification numbers, the partner­
types of income in the order listed. such corporation at any time during the
ship should inform them of the need to get a

Page 46 Publication 515 (2017)

 shorter of the applicable periods were dis­ For distributions before February 17, 2016, the distribution. A distribution from a trust or estate
posed of in transactions in which the full corporation generally must withhold 10% of the to a beneficiary (foreign or domestic) will be
amount of any gain was recognized, and amount realized by a foreign person. For distri­ treated as attributable first to any balance in the
butions after February 16, 2016, the rate increa­ U.S. real property interest account and then to
3. For dispositions after December 17, 2015,
ses to 15%. other amounts.
such corporation and any predecessor of
A trust with more than 100 beneficiaries may
such corporation was not a RIC or a REIT U.S. real property holding corporations. elect to withhold from each distribution 35% of
during the shorter of the applicable peri­ A distribution from a domestic corporation that the amount attributable to the foreign benefi­
ods during which the interest was held. is a U.S. real property holding corporation ciary's proportionate share of the current bal­
(USRPHC) is generally subject to chapter 3 ance of the trust's real property interest ac­
Exception for publicly traded stock. If, at
withholding and withholding under the U.S. real count. This election does not apply to publicly
any time during the calendar year, any class of
property interest provisions. This also applies to traded trusts or real estate investment trusts
stock of a domestic corporation is regularly tra­
a corporation that was a USRPHC at any time (REITs). For more information about this elec­
ded on an established securities market, an in­
during the shorter of the period during which the tion, see Regulations section 1.1445­5(c).
terest in such corporation will not be treated as
U.S. real property interest was held, or the
a U.S. real property interest if the beneficial
5­year period ending on the date of disposition. Publicly traded partnership and trust inter­
owner did not own more than 5% of the total fair
A USRPHC can satisfy both withholding provi­ ests. If any class of interest in a partnership or
market value of that class of interests, or 10% of
sions if it withholds under one of the following a trust is regularly traded on an established se­
the total fair market value of that class of inter­
procedures. curities market, any interest in such a partner­
ests in the case of a REIT (5% for dispositions
Apply chapter 3 withholding on the full ship or trust will be treated as an interest in a
before December 18, 2015) at any time during
amount of the distribution, whether or not publicly traded corporation and will be subject
the shorter of the applicable periods. Certain
any part of the distribution represents a re­ to the rules applicable to those interests.
constructive ownership rules apply for purposes
turn of basis or capital gain. If a reduced
of determining whether any person meets the
tax rate applies under an income tax Qualified investment entities. Special rules
above ownership threshold of any class of
treaty, see Treasury Regulation apply to qualified investment entities (QIEs). A
stock. See section 897(c)(6)(C) for more infor­
1.1441­3T(c)(4)(i)(A) for the minimum with­ QIE is:
mation on the constructive ownership rules.
holding rate that may be applicable.
Apply chapter 3 withholding to the part of 1. A REIT, or
Amount to withhold. The transferee must de­
the distribution that the USRPHC esti­ 2. A RIC that is a U.S. real property holding
duct and withhold a tax on the total amount real­
mates is a dividend. Then, withhold 15% corporation.
ized by the foreign person on the disposition.
(10% for distributions before February 17,
The rate of withholding generally is 15% (10%
2016) on the remainder of the distribution Look­through rule for QIEs. In most ca­
for dispositions before February 17, 2016).
(or on a smaller amount if a withholding ses, any distribution from a QIE to a nonresi­
The amount realized is the sum of: dent alien, foreign corporation, or other QIE that
certificate is obtained and the amount of
The cash paid, or to be paid (principal is attributable to the QIE's gain from the sale or
the distribution that is a return of capital is
only); exchange of a U.S. real property interest is
established).
The fair market value of other property treated as gain recognized by the nonresident
transferred, or to be transferred; and The same procedure must be used for all distri­
alien, foreign corporation, or other QIE from the
The amount of any liability assumed by the butions made during the year. A different proce­
sale or exchange of a U.S. real property inter­
transferee or to which the property is sub­ dure may be used each year.
est.
ject immediately before and after the trans­ A distribution by a QIE to a nonresident alien
Partnerships. If a domestic or foreign part­
fer. or foreign corporation that is treated as gain
nership with any foreign partners disposes of a
If the property transferred was owned jointly by U.S. real property interest at a gain, the gain is from the sale or exchange of a U.S. real prop­
U.S. and foreign persons, the amount realized treated as effectively connected income and erty interest by the shareholder is subject to
is allocated between the transferors based on generally is subject to the rules explained ear­ withholding at 35%.
the capital contribution of each transferor. lier under Partnership Withholding on Effec­ Certain exceptions apply to the look­through
tively Connected Income. A foreign partnership rule for distributions by QIEs. Any distribution by
Residences. This rule applies when the prop­ that disposes of a U.S. real property interest a QIE with respect to stock regularly traded on
erty disposed of is acquired by the transferee may credit the taxes withheld by the transferee an established securities market in the United
for use by the transferee as a residence. If the against the tax liability determined under the States is not treated as gain from the sale or ex­
amount realized on such disposition does not Partnership Withholding on Effectively Connec­ change of a U.S. real property interest if the
exceed $300,000, no withholding is required. ted Income rule. shareholder did not own more than 5% of that
Otherwise, the transferee generally must with­ If a foreign person disposes an interest in a stock (or more than 10% of that stock in the
hold 10% of the amount realized by a foreign partnership in which 50% or more of the value case of REITs) at any time during the 1­year pe­
person. The rate of withholding increases to of the gross assets consist of U.S. real property riod ending on the date of the distribution. A dis­
15% for dispositions after February 16, 2016 interests and 90% or more of the value of the tribution by a REIT generally is not treated as
when the amount realized is in excess of gross assets consist of U.S. real property inter­ gain from the sale or exchange of a U.S. real
$1,000,000. ests plus any cash or cash equivalents, the property interest if the shareholder is a qualified
transferee of the partnership interest must de­ shareholder (as described in section 897(k)(3)).
Foreign corporations. A foreign corpora­ These distributions may be included in the
duct and withhold 15% (10% for dispositions
tion that distributes a U.S. real property interest shareholder's gross income as a dividend from
before February 17, 2016) of the amount real­
must withhold a tax equal to 35% of the gain it the QIE, not as long­term capital gain.
ized on the disposition.
recognizes on the distribution to its sharehold­
ers. Trusts and estates. You are a withholding Disposition of REIT stock. Dispositions of
agent if you are a trustee, fiduciary, or executor stock in a REIT after December 17, 2015, that is
Domestic corporations. A domestic cor­ held directly (or indirectly through 1 or more
of a trust or estate having one or more foreign
poration must withhold tax on the fair market partnerships) by a qualified shareholder may
beneficiaries. You must establish a U.S. real
value of the property distributed to a foreign not be subject to withholding. See section
property interest account. You enter in the ac­
shareholder if: 897(k)(2) for more information.
count all gains and losses realized during the
The shareholder's interest in the corpora­
tax year of the trust or estate from dispositions
tion is a U.S. real property interest, and Domestically controlled QIE. The sale of
of U.S. real property interests. You must with­
The property distributed is either in re­ an interest in a domestically controlled QIE is
hold 35% on any distribution to a foreign benefi­
demption of stock or in liquidation of the not the sale of a U.S. real property interest. The
ciary that is attributable to the balance in the
corporation. entity is domestically controlled if at all times
real property interest account on the day of the
during the testing period less than 50% in value

Publication 515 (2017) Page 47

of its stock was held, directly or indirectly, by during the 1­year period ending on the taining the transferor's name, U.S. tax­
foreign persons. The testing period is the date of the distribution. payer identification number, and home ad­
shorter of (a) the 5­year period ending on the dress (or office address, in the case of an
date of disposition, or (b) the period during Retirement and pension funds. A qualified entity).
which the entity was in existence. foreign pension fund or any entity wholly owned The transferor can give the certification
For the purpose of determining whether a by such qualified foreign pension fund will not to a qualified substitute. The qualified sub­
QIE is domestically controlled, the following be treated as a foreign person for (1) disposi­ stitute gives you a statement, under penal­
rules will apply beginning on December 18, tions of U.S. real property interest after Decem­ ties of perjury, that the certification is in the
2015. ber 18, 2015, or (2) distributions after such date possession of the qualified substitute. For
received from a REIT. Qualified foreign pension this purpose, a qualified substitute is (a)
1. A person holding less than 5% of any
funds are described in section 897(l)(2). the person (including any attorney or title
class of stock of a QIE which is regularly
company) responsible for closing the
traded on an established securities market Additional information. For additional infor­ transaction, other than the transferor's
in the United States at all times during the mation on the withholding rules that apply to agent, and (b) the transferee's agent.
testing period will be treated as a U.S. per­ corporations, trusts, estates, and qualified in­
son unless the QIE has actual knowledge vestment entities, see section 1445 of the Inter­ 5. You receive a withholding certificate from
that such person is not a U.S. person. nal Revenue Code and the related regulations. the Internal Revenue Service that excuses
For additional information on the withholding withholding. See Withholding Certificates,
2. Any stock in a QIE that is held by another
rules that apply to partnerships, see the previ­ later.
QIE will be treated as held by a foreign
person if: ous discussion. 6. The transferor gives you written notice that
You also may write to the: no recognition of any gain or loss on the
a. Any class of stock of such other QIE
transfer is required because of a nonre­
is regularly traded on an established
Internal Revenue Service cognition provision in the Internal Revenue
securities market, or
Philadelphia, PA 19255­0725 Code or a provision in a U.S. tax treaty.
b. Such other QIE is a RIC that issues You must file a copy of the notice by the
certain redeemable securities. 20th day after the date of transfer with the
Ogden Service Center, P.O. Box 409101,
Notwithstanding the above, the stock Ogden, UT 84409.
of the QIE will be treated as held by a U.S. Exceptions. You do not have to withhold if any
person if such other QIE is domestically of the following apply. 7. The amount the transferor realizes on the
controlled. transfer of a U.S. real property interest is
1. You (the transferee) acquire the property zero.
3. Stock in a QIE that is held by any other for use as a residence and the amount re­
QIE not described above will be treated as alized (sales price) is not more than 8. The property is acquired by the United
held by a U.S. person in proportion to the $300,000. You or a member of your family States, a U.S. state or possession, a politi­
stock ownership of such other QIE which must have definite plans to reside at the cal subdivision, or the District of Columbia.
is (or is treated as) held by a U.S. person. property for at least 50% of the number of 9. The grantor realizes an amount on the
days the property is used by any person grant or lapse of an option to acquire a
If a foreign shareholder in a domestically during each of the first two 12­month peri­
controlled QIE disposes of an interest in the QIE U.S. real property interest. However, you
ods following the date of transfer. When must withhold on the sale, exchange, or
in an applicable wash sale transaction, special counting the number of days the property
rules apply. In this transaction, the nonresident exercise of that option.
is used, do not count the days the property
alien, foreign corporation, or other QIE: will be vacant. For this exception, the 10. The disposition is of an interest in a pub­
1. Disposes of an interest in the domestically transferee must be an individual. licly traded partnership or trust. However,
controlled QIE during the 30­day period this exception does not apply to certain
2. The property disposed of is an interest in a dispositions of substantial amounts of
before the ex­dividend date of a distribu­ domestic corporation if any class of stock
tion that would have been treated by the non­publicly traded interests in publicly
of the corporation is regularly traded on an traded partnerships or trusts.
shareholder as gain from the sale or ex­ established securities market. However,
change of a U.S. real property interest; this exception does not apply to certain Late filing of certifications or notices. If
and dispositions of substantial amounts of you become aware that you have failed to
2. Acquires, or enters into a contract or op­ non­publicly traded interests in publicly timely file certain certifications or notices, you
tion to acquire, a substantially identical in­ traded corporations. still may be able to file them.
terest in that entity during the 61­day pe­ Complete the required certification or notice
3. The disposition is of an interest in a do­
riod that began on the first day of the and file it with the appropriate person or the
mestic corporation and that corporation
30­day period. IRS. Also include the following.
furnishes you a certification stating, under
A statement at the top of the document(s)
If this occurs, the shareholder is treated as hav­ penalties of perjury, that the interest is not
that it is “FILED PURSUANT TO REV.
ing gain from the sale or exchange of a U.S. a U.S. real property interest. In most ca­
PROC. 2008­27”.
real property interest in an amount equal to the ses, the corporation can make this certifi­
An explanation describing why the failure
distribution that would have been treated as cation only if either of the following is true.
was due to reasonable cause. Within the
such gain. This also applies to any substitute During the previous 5 years (or, if
explanation, provide that you filed with, or
dividend payment. No withholding is required shorter, the period the interest was
obtained from, an appropriate person the
on these transactions. held by its present owner), the corpo­
required certification or notice.
A transaction is not treated as an applicable ration was not a USRPHC.
wash sale transaction if: As of the date of disposition, the inter­ The completed certification or notice at­
The shareholder actually receives the dis­ est in the corporation is not a U.S. tached to the explanation must be sent to the
tribution from the domestically controlled real property interest by reason of Ogden Service Center, P.O. Box 409101, Og­
QIE on either the interest disposed of, or section 897(c)(1)(B) of the Code. The den, UT 84409.
acquired, in the transaction, or certification must be dated not more
Certifications. The certifications in items
The shareholder disposes of any class of than 30 days before the date of trans­
(3) and (4) are not effective if you (or the quali­
stock in a QIE that is regularly traded on an fer.
fied substitute) have actual knowledge, or re­
established securities market in the United 4. The transferor gives you a certification ceive a notice from an agent (or substitute), that
States but only if the shareholder did not stating, under penalties of perjury, that the they are false. This also applies to the qualified
own more than 5% of that stock at any time transferor is not a foreign person and con­ substitute's statement under item (4).

Page 48 Publication 515 (2017)

 If you (or the substitute) are required by reg­ A withholding certificate may be issued due
In most cases, you must file Form 8288
ulations to furnish a copy of the certification (or to:
DUE by the 20th day after the date of the
statement) to the IRS and you (or the substitute)
transfer. 1. A determination by the IRS that reduced
fail to do so in the time and manner prescribed,
withholding is appropriate because either:
the certification (or statement) is not effective.
If an application for a withholding certificate a. The amount that must be withheld
Liability of agent or qualified substitute. (discussed later) is submitted to the IRS before would be more than the transferor's
If you (or the substitute) receive a certification or on the date of a transfer and the application maximum tax liability, or
discussed in item (3) or (4) or a statement in is still pending with the IRS on the date of trans­
item (4), and the agent, or substitute, has actual fer, the correct withholding tax must be with­ b. Withholding of the reduced amount
knowledge that the certification (or statement) is held, but does not have to be reported and paid would not jeopardize collection of the
false, or in the case of (3), that the corporation over immediately. The amount withheld (or tax;
is a foreign corporation, the agent (or substitute) lesser amount as determined by the IRS) must 2. The exemption from U.S. tax of all gain re­
must notify you, or the agent (or substitute) will be reported and paid over within 20 days follow­ alized by the transferor; or
be held liable for the tax. The agent's (or substi­ ing the day on which a copy of the withholding
tute's) liability is limited to the compensation the certificate or notice of denial is mailed by the 3. An agreement for the payment of tax pro­
agent (or substitute) gets from the transaction. IRS. viding security for the tax liability, entered
An agent is any person who represents the into by the transferee or transferor.
transferor or transferee in any negotiation with If the principal purpose of applying for a Applications for withholding certificates are
another person (or another person's agent) re­ withholding certificate is to delay paying over divided into six basic categories. This categoriz­
lating to the transaction, or in settling the trans­ the withheld tax, the transferee will be subject to ing provides for specific information that is nee­
action. A person is not treated as an agent if the interest and penalties. The interest and penal­ ded to process the applications. The six catego­
person only performs one or more of the follow­ ties will be assessed for the period beginning ries are:
ing acts related to the transaction: on the 21st day after the date of transfer and
Receipt and disbursement of any part of ending on the day the payment is made. 1. Applications based on a claim that the
the consideration; transferor is entitled to nonrecognition
Recording of any document; Form 8288­A, Statement of Withholding on treatment or is exempt from tax,
Typing, copying, and other clerical tasks; Dispositions by Foreign Persons of U.S. 2. Applications based solely on a calculation
Obtaining title insurance reports and re­ Real Property Interests. The withholding of the transferor's maximum tax liability,
ports concerning the condition of the prop­ agent must prepare a Form 8288­A for each
erty; or person from whom tax has been withheld. At­ 3. Applications under special installment
Transmitting documents between the par­ tach copies A and B of Form 8288­A to Form sales rules,
ties. 8288. Keep Copy C for your records. 4. Applications based on an agreement for
IRS will stamp Copy B and send it to the the payment of tax with conforming secur­
Reporting and person subject to withholding. That person ity,
must file a U.S. income tax return and attach
Paying the Tax the stamped Form 8288­A to receive credit for 5. Applications for blanket withholding certifi­
any tax withheld. cates, and
Transferees must use Forms 8288 and 8288­A
A stamped copy of Form 8288­A will 6. Applications on any other basis.
to report and pay over any tax withheld on the
acquisition of U.S. real property interests. ! not be provided to the transferor if the The applicant must make available to
CAUTION transferor's TIN is not included on that
These forms must also be used by corpora­ the IRS, within the time prescribed, all
tions, estates, and QIEs that must withhold tax form. The IRS will send a letter to the transferor RECORDS information required to verify that rep­

on distributions and other transactions involving requesting the TIN and providing instructions resentations relied upon in accepting the agree­
U.S. real property interests. You must include for how to get a TIN. When the transferor pro­ ment are accurate, and that the obligations as­
the U.S. TIN of both the transferor and the vides the IRS with a TIN, the IRS will provide sumed by the applicant will be performed
transferee on the forms. the transferor with a stamped Copy B of Form pursuant to the agreement. Failure to provide
8288­A. requested information promptly usually will re­
For partnerships disposing of U.S. real prop­ sult in rejection of the application, unless the
erty interests, the manner of reporting and pay­ Form 1099­S, Proceeds From Real Estate IRS grants an extension of the target date.
ing over the tax withheld is the same as dis­ Transactions. In most cases, the real estate
cussed earlier under Partnership Withholding broker or other person responsible for closing Categories (1), (2), and (3). Use Form
on Effectively Connected Income. the transaction must report the sale of the prop­ 8288­B, Application for Withholding Certificate
erty to the IRS using Form 1099­S. For more in­ for Dispositions by Foreign Persons of U.S.
Publicly traded trusts must use Forms 1042 formation about Form 1099­S, see the Instruc­
and 1042­S to report and pay over tax withheld Real Property Interests, to apply for a withhold­
tions for Form 1099­S and the General ing certificate. Follow the instructions for the
on distributions from dispositions of U.S. real Instructions for Certain Information Returns.
property interests. form.

QIEs must use Forms 1042 and 1042­S for Withholding Certificates Categories (4), (5), and (6). Do not use Form
a distribution to a nonresident alien or foreign 8288­B for applications under categories (4),
corporation that is treated as a dividend, as dis­ (5), and (6). For these categories follow the in­
The amount that must be withheld from the dis­
cussed earlier under Qualified investment enti­ structions given here and under the specific cat­
position of a U.S. real property interest can be
ties. egory.
adjusted by a withholding certificate issued by
the IRS. The transferee, the transferee's agent, All applications for withholding certificates
Form 8288, U.S. Withholding Tax Return for or the transferor may request a withholding cer­ must use the following format. The information
Dispositions by Foreign Persons of U.S. tificate. The IRS will generally act on these re­ must be provided in paragraphs labeled to cor­
Real Property Interests. The tax withheld on quests within 90 days after receipt of a com­ respond with the numbers and letters set forth
the acquisition of a U.S. real property interest plete application including the TINs of all the below. If the information requested does not ap­
from a foreign person is reported and paid over parties to the transaction. A transferor that ap­ ply, place “N/A” in the relevant space.
using Form 8288. Form 8288 also serves as the plies for a withholding certificate must notify the 1. Information on the application category:
transmittal form for copies A and B of Form transferee in writing that the certificate has been
8288­A. applied for on the day of or the day prior to the a. State which category (4, 5, or 6) de­
transfer. scribes the application,

Publication 515 (2017) Page 49

 b. If a category (4) application: true, correct, and complete to that person's Agreement for payment of tax with non­
knowledge and belief. If the application is conforming security. An applicant seeking to
i. State whether the proposed
based in whole or in part on information provi­ enter into an agreement for the payment of tax
agreement secures (A) the trans­
ded by another party to the transaction, that in­ but wanting to provide a nonconforming type of
feror's maximum tax liability or (B)
formation must be supported by a written verifi­ security must include the following in the appli­
the amount that would otherwise
cation signed under penalties of perjury by that cation:
have to be withheld, and
party and attached to the application.
ii. State whether the proposed 1. The information required for Category (4)
Send applications to the: applications, discussed earlier,
agreement and security instru­
ment conform to the standard for­ 2. A description of the nonconforming secur­
Ogden Service Center
mats. ity proposed by the applicant, and
P.O. Box 409101
2. Information on the transferee or transferor: Ogden, UT 84409 3. A memorandum of law and facts establish­
a. State the name, address, and TIN of ing that the proposed security is valid and
the person applying for the withhold­ enforceable and that it adequately pro­
Category (4) applications. If the application tects the government's interest.
ing certificate (if this person does not
is based on an agreement for the payment of
have a TIN and is eligible for an ITIN, Other nonstandard applications. An ap­
tax, the application must include:
he or she can apply for the ITIN by at­ plication for a withholding certificate not previ­
Information establishing the transferor's
taching the application to a completed ously described must explain in detail the pro­
maximum tax liability, or the amount that
Form W­7 and forwarding the pack­ posed basis for the issuance of the certificate
otherwise has to be withheld;
age to the address given in the Form and set forth the reasons justifying the issuance
A signed copy of the agreement proposed
W­7 instructions); of a certificate on that basis.
by the applicant; and
b. State whether that person is the trans­ A copy of the security instrument proposed
feree or transferor; and by the applicant. Amendments to Applications
c. State the name, address, and TIN of Either the transferee or the transferor may enter
all other transferees and transferors of into an agreement for the payment of tax. The An applicant for a withholding certificate may
the U.S. real property interest for agreement is a contract between the IRS and amend an otherwise complete application by
which the withholding certificate is any other person and consists of two necessary sending an amending statement to the address
sought. elements. Those elements are: shown earlier. There is no particular form re­
A detailed description of the rights and ob­ quired, but the amending statement must pro­
3. Information on the U.S. real property inter­ vide the following information:
ligations of each, and
est for which the withholding certificate is The name, address, and TIN of the person
A security instrument or other form of se­
sought. State the: providing the amending statement specify­
curity acceptable to the Commissioner or
a. Type of interest (such as interest in his delegate. ing whether that person is the transferee or
real property, in associated personal transferor,
For more information on the agreement for The date of the original application for a
property, or in a domestic U.S. real
the payment of tax, including a sample agree­ withholding certificate that is being amen­
property holding corporation);
ment, see section 5 of Revenue Procedure ded,
b. Contract price; 2000­35. Revenue Procedure 2000­35 is in Cu­ A brief description of the real property in­
mulative Bulletin 2000­2, or it can be found on terest for which the original application for
c. Date of transfer;
page 211 of Internal Revenue Bulletin 2000­35 a withholding certificate was provided, and
d. Location and general description (if at www.irs.gov/pub/irs­irbs/irb00­35.pdf. The basis for the amendment including
an interest in real property); There are four major types of security ac­ any change in the facts supporting the
e. Class or type and amount of the inter­ ceptable to the IRS. They are: original application for a withholding certifi­
est in a U.S. real property holding cor­ Bond with surety or guarantor, cate and any change in the terms of the
poration; and Bond with collateral, withholding certificate.
Letter of credit, and
f. Whether in the 3 preceding tax years: Guarantee (corporate transferors).
(1) U.S. income tax returns were filed The statement must be signed and accom­
relating to the U.S. real property inter­ The IRS may, in unusual circumstances and at panied by a penalties of perjury statement.
est and, if so, when and where those its discretion, accept any additional form of se­
returns were filed and, if not, why re­ curity that it finds to be adequate. If an amending statement is provided, the
turns were not filed and (2) U.S. in­ For more information on acceptable security time in which the IRS must act upon the appli­
come taxes were paid relating to the instruments, including sample forms of these in­ cation is extended by 30 days. If the amending
U.S. real property interest and, if so, struments, see section 6 of Revenue Procedure statement substantially changes the original ap­
the amount of tax paid. 2000­35. plication, the time for acting upon the applica­
tion is extended by 60 days. If an amending
4. Provide full information concerning the ba­ Category (5) applications. A blanket with­ statement is received after the withholding cer­
sis for the issuance of the withholding cer­ holding certificate may be issued if the trans­ tificate has been signed, but before it has been
tificate. Although the information to be in­ feror holding the U.S. real property interests mailed to the applicant, the IRS will have a
cluded in this section of the application will provides an irrevocable letter of credit or a guar­ 90­day extension of time in which to act.
vary from case to case, the rules shown antee and enters into a tax payment and secur­
under the specific category provide gen­ ity agreement with the IRS. A blanket withhold­
eral guidelines for the inclusion of appro­
priate information for that category.
ing certificate excuses withholding concerning
multiple dispositions of those property interests
Definitions
The application must be signed by the indi­ by the transferor or the transferor's legal repre­
vidual, a responsible officer in the case of a cor­ sentative during a period of no more than 12 Chapter 4 withholding rate pool. A “chap­
poration, a general partner in the case of a part­ months. ter 4 withholding rate pool” means a pool of
nership, or a trustee, executor, or equivalent For more information, see section 9 of Reve­ payees that are nonparticipating FFIs provided
fiduciary in the case of a trust or estate, or a nue Procedure 2000­35. on a chapter 4 withholding statement (as de­
duly authorized agent (with a copy of the power scribed in Treasury regulations section
of attorney, such as Form 2848, attached). The Category (6) applications. These are non­ 1.1471­3(c)(3)(iii)(B)(3) to which a withholdable
person signing the application must verify under standard applications and may be of the follow­ payment is allocated. The term also means a
penalties of perjury that all representations are ing types. pool of payees provided on an FFI withholding

Page 50 Publication 515 (2017)

statement (as described in Treasury regulations Model 2 IGA. A “Model 2 IGA” means an porting financial institution under a Model 2
section 1.1471­3(c)(iii)(B)(2)) to which a with­ agreement or arrangement between the United IGA.
holdable payment is allocated to (A) a pool of States or the Treasury Department and a for­
payees consisting of each class of recalcitrant eign government or one or more foreign agen­ Territory financial institution. A “territory fi­
account holders described in Treasury regula­ cies to implement FATCA through reporting by nancial institution” is a financial institution that is
tions section 1.1471­4(d)(6) (or with respect to financial institutions directly to the IRS in ac­ incorporated or organized under the laws of any
an FFI that is a QI, a single pool of recalcitrant cordance with the requirements of the FFI U.S. territory, excluding a territory entity that is a
account holders), including a separate pool of agreement, as modified by an applicable Model financial institution only because it is an invest­
account holders to which the escrow proce­ 2 IGA, supplemented by the exchange of infor­ ment entity as defined in Treasury regulations
dures for dormant accounts apply; or (B) a pool mation between such foreign government or section 1.1471­5(e)(4).
of payees that are U.S. persons as described in agency thereof and the IRS. For a list of juris­
Treasury regulations section 1.1471­3(c)(3)(iii) dictions treated as having an IGA in effect, see Withholdable payment. A “withholdable pay­
(B)(2) (including such a pool allocated a report­ www.irs.gov/Businesses/Corporations/ ment” is a payment described in Treasury regu­
able amount on a withholding statement provi­ Information­for­Foreign­Financial Institutions. lations section 1.1473­1(a). See Income Sub­
ded solely for chapter 3 purposes). ject to Withholding, earlier, for a discussion of
Non­financial foreign entity (NFFE). A which payments qualify as withholdable pay­
Deemed­compliant FFI. A “deemed­compli­ “non­financial foreign entity” (NFFE) is a foreign ments.
ant FFI” means an FFI that is treated, pursuant entity that is not a financial institution. A NFFE
to section 1471(b)(2) and Treasury regulations includes a territory NFFE, as defined in Treas­
section 1.1471­5(f), as meeting the require­ ury regulations section 1.1471­1(b)(132), and a Tax Treaties
ments of section 1471(b). foreign entity treated as an NFFE pursuant to a
Model 1 IGA or Model 2 IGA. The United States has income tax treaties (or
Exempt beneficial owner. An “exempt benefi­ conventions) with a number of foreign countries
cial owner” is any person described in Treasury Nonparticipating FFI. A “nonparticipating FFI” under which residents (sometimes limited to
regulations section 1.1471­6(b) through (g) and is an FFI other than a participating FFI, a citizens) of those countries are taxed at a re­
includes any person treated as an exempt ben­ deemed­compliant FFI, or an exempt beneficial duced rate or are exempt from U.S. income
eficial owner under an applicable Model 1 IGA owner. taxes on certain income received from within
or Model 2 IGA. the United States.
Participating FFI. A “participating FFI” is an
Financial institution (FI). A “financial institu­ FFI, or branch of an FFI, that has in effect an Income that is exempt under a treaty is not
tion” (FI) is any institution that is a depository in­ FFI agreement with the IRS, and includes a re­ subject to withholding at source under the statu­
stitution, custodial institution, investment entity, porting Model 2 FFI. tory rules discussed in this publication.
insurance company (or holding company of an
insurance company) that issues cash value in­ Passive NFFE. A “passive NFFE” is an NFFE Obtaining treaty information. You can obtain
surance or annuity contracts, or a holding com­ that is not an excepted NFFE. With respect to a the full text of these treaties at IRS.gov. Enter
pany or treasury center that is part of an expan­ reporting Model 2 FFI filing a Form 8966 to re­ “Tax treaties” in the search box. Click “United
ded affiliated group of certain FFIs, and port its accounts and payees, a passive NFFE States Income Tax Treaties­­A to Z.”
includes a financial institution as defined under is an NFFE that is not an active NFFE (as de­ Detailed information about treaty provisions
an applicable Model 1 IGA or Model 2 IGA. See fined in the applicable IGA). can be found at www.irs.gov/Individuals/
Treasury regulations section 1.1471­5(e)(1). International­Taxpayers/Tax­Treaties.
Qualified derivatives dealer (QDD). A quali­
Foreign financial institution (FFI). Except as fied derivatives dealer (QDD) is a qualified in­ Tax treaty tables. The treaty tables previously
otherwise provided for certain foreign branches termediary that is an eligible entity (as defined contained in this publication have been updated
of a U.S. financial institution or territory financial in Treasury Regulations section 1.1441­1(e)(6) and moved to www.irs.gov/Individuals/
institution, a “foreign financial institution” (FFI) (ii)) that agrees to meet the requirements of International­Taxpayers/Tax­Treaty­Tables.
means a financial institution that is a foreign en­ Treasury Regulations section 1.1441­1(e)(6)(i)
tity. The term foreign financial institution also in­ and the QI agreement.
cludes a foreign branch of a U.S. financial insti­ How To Get Tax Help
tution with a QI agreement in effect. Recalcitrant account holder. A “recalcitrant
account holder” is an account holder (other than If you have questions about a tax issue, need
Limited branch. In the case of a participating an account holder that is an FFI or is presumed help preparing your tax return, or want to down­
FFI, a “limited branch” means a branch descri­ to be an FFI) of a participating FFI or registered load free publications, forms, or instructions, go
bed in Treasury regulations section 1.1471­4(e) deemed­compliant FFI that has failed to provide to IRS.gov and find resources that can help you
(2)(iii). With respect to a reporting Model 2 FFI, the FFI maintaining its account with the informa­ right away.
a limited branch is a branch of the reporting tion required under Treasury regulations section
Model 2 FFI that operates in a jurisdiction that 1.1471­5(g). Preparing and filing your tax return. Find
prevents such branch from fulfilling the require­ free options to prepare and file your return on
ments of a participating FFI or deemed­compli­ Registered deemed­compliant FFI. A “regis­ IRS.gov or in your local community if you qual­
ant FFI and that is treated as a nonparticipating tered deemed­compliant FFI ” is an FFI descri­ ify.
FFI pursuant to section 1471(e)(1)(B) of the bed in Treasury regulations section 1.1471­5(f)
The Volunteer Income Tax Assistance
Code. (1), and includes a reporting Model 1 FFI, a QI
(VITA) program offers free tax help to people
branch of a U.S. financial institution that is a re­
who generally make $54,000 or less, persons
Model 1 IGA. A “Model 1 IGA” means an porting Model 1 FFI, and a nonreporting FI
with disabilities, the elderly, and limited­Eng­
agreement between the United States or the treated as a registered deemed­compliant FFI
lish­speaking taxpayers who need help prepar­
Treasury Department and a foreign government under an applicable IGA.
ing their own tax returns. The Tax Counseling
or one or more foreign agencies to implement for the Elderly (TCE) program offers free tax
FATCA through reporting by financial institu­ Reporting Model 1 FFI. A “reporting Model 1
help for all taxpayers, particularly those who are
tions to such foreign government or agency FFI” is an FI, including a foreign branch of a
60 years of age and older. TCE volunteers spe­
thereof, followed by automatic exchange of the U.S. financial institution, treated as a reporting
cialize in answering questions about pensions
reported information with the IRS. For a list of financial institution under a Model 1 IGA.
and retirement­related issues unique to seniors.
jurisdictions treated as having an IGA in effect,
see www.irs.gov/Businesses/Corporations/ Reporting Model 2 FFI. A “reporting Model 2
Information­for­Foreign­Financial Institutions. FFI” is an FI or branch of an FI treated as a re­

Publication 515 (2017) Page 51

 You can go to IRS.gov and click on the Fil­ Mail Form 4506­T or Form 4506T­EZ (both Electronic Federal Tax Payment Sys­
ing tab to see your options for preparing and fil­ available on IRS.gov). tem: Best option for businesses. Enroll­
ing your return which include the following. ment is required.
Free File. Go to IRS.gov/freefile. See if Using online tools to help prepare your re­ Check or money order: Mail your pay­
you qualify to use brand­name software to turn. Go to IRS.gov/tools for the following. ment to the address listed on the notice or
prepare and e­file your federal tax return The Earned Income Tax Credit Assistant instructions.
for free. (IRS.gov/eic) determines if you are eligible Cash: If cash is your only option, you may
VITA. Go to IRS.gov/vita, download the for the EIC. be able to pay your taxes at a participating
free IRS2Go app, or call 1­800­906­9887 The Online EIN Application (IRS.gov/ein) retail store.
to find the nearest VITA location for free helps you get an employer identification
tax preparation. number. What if I can’t pay now? Go to IRS.gov/
TCE. Go to IRS.gov/tce, download the free The IRS Withholding Calculator (IRS.gov/ payments for more information about your op­
IRS2Go app, or call 1­888­227­7669 to w4app) estimates the amount you should tions.
find the nearest TCE location for free tax have withheld from your paycheck for fed­ Apply for an online payment agreement
preparation. eral income tax purposes. (IRS.gov/opa) to meet your tax obligation
The First Time Homebuyer Credit Account in monthly installments if you can’t pay
Getting answers to your tax law Look­up (IRS.gov/homebuyer) tool pro­ your taxes in full today. Once you complete
questions. On IRS.gov get answers to vides information on your repayments and the online process, you will receive imme­
your tax questions anytime, anywhere. account balance. diate notification of whether your agree­
Go to IRS.gov/help or IRS.gov/letushelp The Sales Tax Deduction Calculator ment has been approved.
pages for a variety of tools that will help (IRS.gov/salestax) figures the amount you Use the Offer in Compromise Pre­Qualifier
you get answers to some of the most com­ can claim if you itemize deductions on (IRS.gov/oic) to see if you can settle your
mon tax questions. Schedule A (Form 1040), choose not to tax debt for less than the full amount you
Go to IRS.gov/ita for the Interactive Tax claim state and local income taxes, and owe.
Assistant, a tool that will ask you questions you didn’t save your receipts showing the
on a number of tax law topics and provide sales tax you paid. Checking the status of an amended return.
answers. You can print the entire interview Go to IRS.gov and click on Where’s My
and the final response for your records. Resolving tax­related identity theft issues. Amended Return? (IRS.gov/wmar) under the
Go to IRS.gov/pub17 to get Pub. 17, Your The IRS doesn’t initiate contact with tax­ “Tools” bar to track the status of Form 1040X
Federal Income Tax for Individuals, which payers by email or telephone to request amended returns. Please note that it can take
features details on tax­saving opportuni­ personal or financial information. This in­ up to 3 weeks from the date you mailed your
ties, 2016 tax changes, and thousands of cludes any type of electronic communica­ amended return for it show up in our system
interactive links to help you find answers to tion, such as text messages and social me­ and processing it can take up to 16 weeks.
your questions. View it online in HTML or dia channels.
as a PDF or, better yet, download it to your Go to IRS.gov/idprotection for information Understanding an IRS notice or letter. Go to
mobile device to enjoy eBook features. and videos. IRS.gov/notices to find additional information
You may also be able to access tax law in­ If your SSN has been lost or stolen or you about responding to an IRS notice or letter.
formation in your electronic filing software. suspect you are a victim of tax­related
identity theft, visit IRS.gov/id to learn what Contacting your local IRS office. Keep in
steps you should take. mind, many questions can be resolved on
Getting tax forms and publications. Go to IRS.gov without visiting an IRS Tax Assistance
IRS.gov/forms to view, download, or print all of Checking on the status of your refund. Center (TAC). Go to IRS.gov/letushelp for the
the forms and publications you may need. You Go to IRS.gov/refunds. topics people ask about most. If you still need
can also download and view popular tax publi­ Due to changes in the law, the IRS can’t is­ help, IRS TACs provide tax help when a tax is­
cations and instructions (including the 1040 in­ sue refunds before February 15, 2017, for sue can’t be handled online or by phone. All
structions) on mobile devices as an eBook at no returns that claim the EIC or the ACTC. TACs now provide service by appointment so
charge. Or, you can go to IRS.gov/orderforms This applies to the entire refund, not just you’ll know in advance that you can get the
to place an order and have forms mailed to you the portion associated with these credits. service you need without waiting. Before you
within 10 business days. Download the official IRS2Go app to your visit, go to IRS.gov/taclocator to find the nearest
mobile device to check your refund status. TAC, check hours, available services, and ap­
Using direct deposit. The fastest way to re­ Call the automated refund hotline at pointment options. Or, on the IRS2Go app, un­
ceive a tax refund is to combine direct deposit 1­800­829­1954. der the Stay Connected tab, choose the Con­
and IRS e­file. Direct deposit securely and elec­ tact Us option and click on “Local Offices.”
tronically transfers your refund directly into your Making a tax payment. The IRS uses the lat­
financial account. Eight in 10 taxpayers use di­ est encryption technology to ensure your elec­ Watching IRS videos. The IRS Video portal
rect deposit to receive their refund. IRS issues tronic payments are safe and secure. You can (IRSvideos.gov) contains video and audio pre­
more than 90% of refunds in less than 21 days. make electronic payments online, by phone, sentations for individuals, small businesses,
and from a mobile device using the IRS2Go and tax professionals.
Delayed refund for returns claiming certain app. Paying electronically is quick, easy, and
credits. Due to changes in the law, the IRS faster than mailing in a check or money order. Getting tax information in other languages.
can’t issue refunds before February 15, 2017, Go to IRS.gov/payments to make a payment For taxpayers whose native language isn’t Eng­
for returns that claim the earned income credit using any of the following options. lish, we have the following resources available.
(EIC) or the additional child tax credit (ACTC). IRS Direct Pay: Pay your individual tax bill Taxpayers can find information on IRS.gov in
This applies to the entire refund, not just the or estimated tax payment directly from the following languages.
portion associated with these credits. your checking or savings account at no Spanish (IRS.gov/spanish).
cost to you. Chinese (IRS.gov/chinese).
Getting a transcript or copy of a return. The Debit or credit card: Choose an ap­ Vietnamese (IRS.gov/vietnamese).
quickest way to get a copy of your tax transcript proved payment processor to pay online, Korean (IRS.gov/korean).
is to go to IRS.gov/transcripts. Click on either by phone, and by mobile device. Russian (IRS.gov/russian).
"Get Transcript Online" or "Get Transcript by Electronic Funds Withdrawal: Offered The IRS TACs provide over­the­phone inter­
Mail" to order a copy of your transcript. If you only when filing your federal taxes using preter service in over 170 languages, and the
prefer, you can: tax preparation software or through a tax service is available free to taxpayers.
Order your transcript by calling professional.
1­800­908­9946.

Page 52 Publication 515 (2017)

The Taxpayer Advocate You face (or your business is facing) an How Else Does the Taxpayer
Service Is Here To Help You immediate threat of adverse action, or Advocate Service Help Taxpayers?
You’ve tried repeatedly to contact the IRS
What is the Taxpayer Advocate but no one has responded, or the IRS TAS works to resolve large­scale problems that
Service? hasn’t responded by the date promised. affect many taxpayers. If you know of one of
these broad issues, please report it to us at
The Taxpayer Advocate Service (TAS) is an in­ How Can You Reach Us? IRS.gov/sams.
dependent organization within the IRS that
helps taxpayers and protects taxpayer rights.
Our job is to ensure that every taxpayer is
We have offices in every state, the District of Low Income Taxpayer
Columbia, and Puerto Rico. Your local advo­
treated fairly and that you know and understand cate’s number is in your local directory and at
Clinics
your rights under the Taxpayer Bill of Rights. taxpayeradvocate.irs.gov. You can also call us
Low Income Taxpayer Clinics (LITCs) serve in­
at 1­877­777­4778.
dividuals whose income is below a certain level
What Can the Taxpayer Advocate and need to resolve tax problems such as au­
Service Do For You? How Can You Learn About Your dits, appeals, and tax collection disputes. Some
Taxpayer Rights? clinics can provide information about taxpayer
We can help you resolve problems that you
rights and responsibilities in different languages
can’t resolve with the IRS. And our service is The Taxpayer Bill of Rights describes 10 basic for individuals who speak English as a second
free. If you qualify for our assistance, you will be rights that all taxpayers have when dealing with language. To find a clinic near you, visit
assigned to one advocate who will work with the IRS. Our Tax Toolkit at IRS.gov/litc or see IRS Publication 4134, Low
you throughout the process and will do every­ taxpayeradvocate.irs.gov can help you under­ Income Taxpayer Clinic List.
thing possible to resolve your issue. TAS can stand what these rights mean to you and how
help you if: they apply. These are your rights. Know them.
Your problem is causing financial difficulty Use them.
for you, your family, or your business,

Publication 515 (2017) Page 53

 To help us develop a more useful index, please let us know if you have ideas for index entries.
Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

When to 41 Form: 08 30
10% owners 28 Deposits 28 1042 4, 15, 17, 42 09 31
501(c) organizations 39 Disregarded entities 5 1042­S 4, 15, 17, 42 10 31
80/20 company 29 Dividend equivalent 1099 4 11 31
payments 30 1099­S 49 12 31
Dividend Equivalents 30 4419 43 14 31
A Dividends: 7004 43 15 31
Acceptance agent 40 Direct dividend rate 30 8233 33 16 32
Accounts, offshore 11 Domestic corporation 29 8288 49 17 34
Alien: Foreign corporations 30 8288­A 49 18 36
Defined 8 In general 29 8288­B 49 19 37
Illegal 33 Documentary evidence 11, 19, 8804 45 20 37, 38
Nonresident alien 8 21 8805 45 24 49
Resident alien 8 Documentation 9–23 8813 46 25 49
Alimony 31, 32 For chapter 3 9 8833 10 26 49
American Samoa 9 For chapter 4 9 8966 4 27 46
Amount to withhold 3 From foreign beneficial owners 940 36 28 38
Annuities 31 and U.S. payees 9 941 36 29 28
Artists and athletes: From foreign intermediaries and 972 30 30 26
Earnings of 38 foreign flow­through SS­4 40 42 38
Special events and entities 12 SS­5 40 43 38
promotions 38 Presumptions in the absence W­2 36 51 39
Assistance (See Tax help) of 22 W­4 32, 34, 36 Independent personal services:
Awards 33 W­7 40 Defined 34
W­8BEN 10, 11 Exempt from withholding 34
E W­8BEN­E 11 India 36
B Effectively connected income: W­8ECI 11 Indirect account holders 20
Backup withholding 4 Defined 25 W­8EXP 12 Installment payment 25, 45
Banks, interest received by 28 Foreign partners 44 W­8IMY 12 Insurance proceeds 25
Beneficial owner 10 Partnerships 4 W­8 series 10 Interest:
Beneficiary of foreign trust 17 EFTPS 41 W­9 10, 40 Contingent 28
Bonds sold between interest Electronic deposit rules 41 FUTA 36 Controlled foreign
dates 29 Employees 24, 35 corporations 28
Branch profits tax 30 Employer 35 Deposits 28
Exempt beneficial owner 51 G Foreign business
Gambling winnings 38 arrangements 29
Global intermediary identification Foreign corporations 28
C
Canada 37, 43 F number (GIIN) 21, 40 Income 26
FATCA report 4 Graduated rates 37 Portfolio 27, 28
Capital gains 31
Federal unemployment tax 36 Graduated withholding 35 Real property mortgages 28
Central withholding
Fellowship grants 32 Grants 24, 32, 33 Intermediary:
agreements 38
Fellowships 24 Green card test 8 Foreign 6
Chapter 3 withholding 3–9
Financial institution (FI) 51 Guam 9 Nonqualified 7
Income subject to 23
Financial institutions 7 Qualified 6, 7, 12
Payees 5
FIRPTA withholding 4, 46 International organizations 39
Persons subject to 4
Chapter 4 withholding 3–9 Fiscally transparent entity 6 I ITIN 40
Payees 5 Fixed or determinable annual or Identification number,
Persons subject to 4 periodic income 24 taxpayer 40, 46
Withholding rate pool 50 Flow­through entities 5 Identity theft 52 K
Withholding statement 12 Foreign: Important reminders 1 Knowledge, standards of 18
Charitable organizations 9 501(c) organizations 39 Income:
Consent dividends 30 Bank 7, 26 Fixed or determinable annual or
Contingent interest 28 Charitable organizations 9 periodical 24 L
Controlled foreign corporations: Corporations 8 Interest 26 Liability of withholding agent 3
Interest paid to 28 Governments 39 Notional principal contract 26 Limited branch 51
Covenant not to compete 25 Insurance company 7, 26 Other than effectively
Crew members 24 Intermediary, payee 6 connected 26
Organizations and Pensions 24 M
associations 9 Personal service 23 Magnetic media reporting 43
D Partner 44 Source of 23 Marketable securities 10
Deemed­compliant FFI 51 Partnerships, payee 5 Transportation 38 Mexico 37
Dependent personal services 36 Private foundation 9, 39 Income code: Model 1 IGA 51
Allowance for personal Status 19 01 26 Model 2 IGA 51
exemptions 36 Trusts, payee 6 02 28 Mortgages 28
Defined 36 Foreign financial institution 03 28 Multi­level marketing 24
Exempt from withholding 36 (FFI) 51 04 28
Depositing taxes: Foreign person 8 06 29
How to 41 07 30

Page 54 Publication 515 (2017)

 Dependent personal Researchers 37 U.S. possession, resident of 8
N services 36 Resident alien, defined 8 U.S. real property
Non­financial foreign entity Employees 35 Returns required 42 interest (See Real property
(NFFE) 51 Exempt from withholding 33 Royalties 31 interest)
Nonparticipating FFI 51 Independent personal Ryukyu Islands 29 U.S. savings bonds 29
Nonqualified intermediary: services 34 U.S. territorial limits 24
Alternative withholding Salaries and wages 35 U.S. Virgin Islands 9
procedure 15 Scholarship or fellowship S Unexpected payment 40
Chapter 4 withholding rate recipient 33 Salaries 35
pool 15 Studying 37 Saving clause 33
Defined 7 Teaching 37 Scholarships 24, 32 W
For chapter 3 purposes 14 Training 37 Securities 25 Wages:
For chapter 4 purposes 14 Penalties: Securities, marketable 10 Paid to employees 35
For chapter 61 purposes 14 Deposit 41 Services performed outside the Pay that is not 35
Pooled withholding 15 Form 1042 44 U.S. 36 When to withhold 3
Withholding statement 14 Form 8804 46 Short­term obligation 29 Withhold, amount to 3
Non­registered obligations 27 Form 8805 46 Social security 37 Withhold, when to 3
Nonresident alien: Magnetic media 44 Source of income 23 Withholdable payment 3–5, 51
Defined 8 Trust fund recovery 36 Standards of knowledge: Withholding:
Married to U.S. citizen or Pensions 24, 31 For chapter 3 18 Agreements 34, 38
resident 8 Per diem 33 For chapter 4 21 Certificate 18, 21
Who becomes a resident Personal service income 23 Substantial presence test 8 Chapter 3 3
alien 33 Pooled withholding Chapter 4 3
Nonwage pay 35 information 15 In general 2
Northern Mariana Islands 9 Portfolio interest 27, 28 T On specific income 25
Notional principal contract Presumption rules: Tax­exempt entities 39 Rate pool 15, 50
income 26 Corporation 22 Tax help 51 Real property 46
Individual 22 Taxpayer identification number Reporting and paying 45
Partnership 22 (TIN) 40, 46 Withholding agent 3
O Trust 22 Exceptions 40 Liability 3
Obligations: Private foundation, foreign 9 Tax treaties (See Treaties) Returns required 42
Not in registered form 27 Prizes 33 Teachers 37 Tax deposit requirements 41
Registered 27 Publications (See Tax help) Ten­percent owners 28 Withholding exemptions and
Offshore accounts 11 Puerto Rico 8, 37 Territorial limits 24 reductions:
Original issue discount 26 Territory financial institution 51 Dependent personal
Overwithholding, adjustment Totalization agreements 37 services 36
for 41 Q Transportation income 38 Exemption 25
QI agreement 7 Travel expenses 34 Final payment exemption 34
Qualified intermediary: Treaties: Foreign governments 39
P Agency option 14 Claiming benefits for International organizations 39
Participating FFI 12, 51 Collective refund procedures 14 chapter 3 10 Real property interest 49
Partner, foreign 44, 46 Defined 12 Dependent personal Researchers 37
Partnerships: Joint account treatment 13 services 37 Scholarships and fellowship
Effectively connected income of Payee 7 Entertainers and athletes 38 grants 32
foreign partners 44 Reporting on Form 1042­S 14 Gains 31 Students 38
Foreign payee 5 Responsibilities and Independent personal Withholding agreements 34, 38
Publicly traded 46 documentation 13 services 35 Withholding foreign partnership
Withholding foreign 8, 15 Qualified investment entity (QIE): Rate tables 51 (WP):
Passive NFFE 51 Distributions paid by 47 Students 33, 38 Agency option 16
Payee: Dividends paid by 29 Teaching 37 Collective refund procedures 16
Charitable organizations 9 Trainees 38 Joint account treatment 16
Fiscally transparent entity 6 Trusts: Not acting as WP 16
Foreign flow­through entities 12 R Foreign payee 6 Withholding foreign trust (WT):
Foreign intermediaries 12 Racing purses 25 Withholding foreign 8, 17 Agency option 17
Foreign partnerships 5 Real property interest: Trust Territory of the Pacific Collective refund procedures 17
Foreign trusts 6 Disposition of 46 Islands 29 Joint account treatment 17
Identifying 4 Withholding certificates 49 Not acting as WT 18
Nonqualified intermediary 7 Withholding obligation 4 Reporting U.S. beneficiaries 17
Organizations and Reason to know 18 U Responsibilities of 17
associations 9 Recalcitrant account holder 51 U.S. agent of foreign person 4
Private foundations 9 Registered deemed­compliant U.S. branch:
Qualified intermediary 7 FFI 12, 51 Foreign bank 7, 26
U.S branches of foreign Registered obligations 27 Foreign insurance company 7,
persons 9 Reporting and paying the tax 45 26
Pay for personal services: Reporting Model 1 FFI 51 Foreign person 9
Artists and athletes 38 Reporting Model 2 FFI 51 U.S. national 34

Publication 515 (2017) Page 55