IRS Draft Form W-9 Request for Taxpayer Identification Number and Certification

Transcription

1 Francisca N. Mrdi Vice President & Sr. Tax Cunsel Phne: Fax: December 3, 2010 Internal Revenue Service Rm 5203 P.O. Bx 7604 Ben Franklin Statin, NW Washingtn, DC RE: IRS Draft Frm W-9 Request fr Taxpayer Identificatin Number and Certificatin Dear Sir/Ma am: The American Bankers Assciatin (ABA) is pleased t submit cmments n the Draft Frm W-9 Request fr Taxpayer Identificatin Number and Certificatin (the Draft ) issued by the Internal Revenue Service (the Service r IRS) n Nvember 4, The ABA represents banks f all sizes and charters and is the vice fr the natin s $13 trillin banking industry and its tw millin emplyees. Several years ag, the industry requested that the Service redesign and issue a new Frm W-9. The gal is t restructure the frm t make it easier t use (fr payers and payees) and als request all the necessary infrmatin abut a custmer fr purpses f the Service s infrmatin and tax reprting prgram. The ABA cmmends the Service s effrts s far in trying t reach that gal. This letter addresses sme f ur cncerns with the Draft (and prvides sme suggestins/recmmendatins) and als addresses ther issues that we hpe that the Service will take int serius cnsideratin as it attempts t finalize the Draft. Implementatin Issues: While we appreciate the fact the Service issued the revised frm as a draft, it is unclear whether the Service intends t mandate the use f the revised frm earlier than ne year frm the date it was issued. Financial institutins will need sufficient time t implement the finalized Frm W-9. System enhancements will be necessary at the frnt end (fr accunt pening) as well as the back end (fr cding accunts as subject t r exempt frm backup withhlding and infrmatin reprting, based n the custmer s W-9). Typically, any system enhancements must be scheduled mnths in advance, and then take mnths f additinal time t build and test. We strngly recmmend that the Service nt require mandatry and exclusive use f the new Frm W-9 until after the calendar year in which it is finalized, plus at least ne full additinal calendar year. Hence, mandatry use f the revised Frm W-9 shuld be prspective nly. Further, nn-exempt payees that prvided a certified TIN n the December 2000 r any later versin f Frm W-9 (r acceptable substitute) shuld be grandfathered, and nt have t recertify their TINs n the revised Frm W-9, unless they change their name, TIN r entity type, r their accunts appear n a B-Ntice r Civil Penalty Ntice (similar t the IRS Reg (d)-1(b)(1) rules fr pre-1984 accunts). If banks will be required t perfrm mass-mailed slicitatins using the December 2010 versin f Frm W-9 t determine which crprate clients are C Crpratins and which are S Crpratins, rather than require backup withhlding n such clients that fail t send back a valid respnse, clients that already have a TIN n file shuld be treated as if they were U.S. nn-exempt payees (similar t the IRS Reg (d)-1(b)(1) rules fr pre-1984 accunts).

2 Fr purpses f 1099 infrmatin returns and Cst Basis Transfer Statement reprting that will apply t S Crpratins but nt C Crpratins, any crpratins that have nt certified their status n the December 2010 versin f Frm W-9 shuld be presumed t be S Crpratins until they recertify n the new frm. Entity Classificatin Issues: The Service shuld nt require that the entity classificatin bx be checked in rder t validate a payee s Frm W-9 fr TIN certificatin purpses. Under current rules, the Service permits a payr t rely n a payee s Frm W-9 (r acceptable substitute) certificatin as lng as it cntains the payee s name and TIN, and is signed and dated by the payee. [IRS Reg (h)-3(e)(2)]. We suggest that the Service clarify in the instructins that indicating the entity type shuld nly be required if the payee claims t be exempt. Thus, a payee that prvides a W-9 that cntains name/tin/signature/date, but des nt indicate entity type, shuld be treated as a nn-exempt payee fr purpses f 1099 reprting and backup withhlding - unless the payr elects t treat it as exempt t the extent permitted by Reg (c)(1)(ii) r any ther eyeball test that applies t the type f incme paid. Sme banks currently face systemic challenges when trying t bth capture the name/tin f a Disregarded Entity s wner fr infrmatin reprting purpses and reflect the Disregarded Entity s wn name in the accunt title fr legal accunt-wnership purpses. A 1099 return that is generated systemically with a Disregarded Entity s name and the wner s TIN will result in a B-Ntice because the IRS des nt recgnize such a name/tin cmbinatin as valid. Absent a manual wrk-arund t prduce a 1099 that des nt shw the Disregarded Entity s name n Name Line 1 f the 1099, errneus backup withhlding culd result. Until the IRS enhances its TIN Matching system t recgnize the cmbinatin f a Disregarded Entity s name and its wner s TIN, any 1099 infrmatin returns with that cmbinatin that are listed n a B-Ntice r Civil Penalty Ntice shuld be treated the same a fiduciary accunt under IRS Reg (d)-5(b)(4)(i)(A). On a Frm W-9 submitted by an wner n behalf f an LLC that is a Disregarded Entity, in additin t checking LLC as the entity type and entering D as the tax classificatin, the wner shuld als be permitted t check the entity type crrespnding t its wn tax classificatin, as well as the exempt checkbx if applicable (e.g., if the wner is a C Crpratin). In effect, a Disregarded Entity s single wner that is a C Crpratin wuld be permitted t check the C Crpratin entity type and the Exempt checkbx, as well as checking LLC and entering D as the Disregarded Entity s tax classificatin. A Frm W-9 cmpleted in this manner wuld enable the payr t suppress backup withhlding and 1099 reprting n accunts titled in the Disregarded Entity s name, because the same Frm W-9 wuld be valid t certify the wner s name/ein cmbinatin and exempt status. B-Ntice & Civil Penalty Ntice Issues: Since all crprate accunts were previusly exempt frm reprting and withhlding, there was n incentive fr payers t clean-up name/tin cmbinatins fr crpratins where changes had ccurred ver the years due t mergers, acquisitins, and ther events. New infrmatin reprting requirements will lead t numerus "B- Ntices" and trigger backup withhlding when crpratins' names and TINs dn't match the IRS's data base. The IRS recently lwered its dllar threshld fr generating B-Ntices when there is a mismatch f the payee s name and TIN. This has resulted in a substantial rise in the number f accunts receiving B-Ntices, which gave payers an pprtunity t identify errrs and clean up nn-exempt accunts. 2

3 In rder t prvide additinal time t clean up and identify crprate accunts with incrrect name/tin cmbinatins, particularly fr crpratins that were never subject t 1099 reprting befre, the IRS shuld prvide relief frm B-Ntice backup withhlding and related Civil Penalties, fr payments made t crpratins, fr at least a tw-year transitinal perid after crprate reprting is first required fr a particular type f incme. Impsing B-Ntice backup withhlding n crpratins that had changed their name since their accunts were pened, r that use their DBA names fr banking purpses will have an adverse custmer service impact n crprate clients. Fr small crpratins that depend n cash flw, backup withhlding - even if such withhlding is nly fr a shrt time will result in severe hardship if such crpratins d nt have the name r ther specific cntact infrmatin fr a crprate fficer authrized t sign the client s Frm W-9. The timing f the B-Ntice prcess will be especially challenging fr crprate accunts that are subjected t backup withhlding in December fllwing the first-pass B-Ntice, because under IRS Reg (a)-3, payers ability t refund backup withhlding tax t payees is limited during the calendar year, and cmpletely unavailable after year-end. The IRS s TIN Matching prgram will help payers identify and reduce sme f the crprate name/tin errrs that currently exist in advance f receipt f B-Ntices, but many crprate accunts will take several years t clean-up incrrect names and TINs. Civil Penalty relief fr tax year 2012 shuld be prvided fr crprate reprting related t the new regulatins under sectin 6041 in rder t give payers time t transitin thrugh the new reprting requirements. There will be tremendus pressure n payers t slicit certified EINs frm crpratins that never had t prvide them in the past. In general, there is very limited cmmunicatin between payers and crprate payees because payments t payees typically g frm the banks t a lckbx area, rather than t a named individual. Thus, it will be extremely difficult fr payers t cmmunicate with many crprate payees r cllect the required infrmatin in rder t cmply with the reprting requirements under the new regulatins. Signature and Date Issues: Payers shuld be permitted t date-stamp r therwise enter the date received directly n the W-9 frm, r alternatively, make a systemic recrd f the date received (e.g., by systemically recrding the date that a paper certificatin is scanned int an electrnic recrdkeeping system), fr any therwise-valid and signed Frm W-9 that was nt dated by the payee, and thus cnsider the payee t be validly certified. This prcedure is currently permitted fr withhlding agents that receive therwise-valid and signed but undated W-8 frms. In the alternative, the IRS shuld allw payers t enter the date received n any therwise-valid signed but undated Frm W-9 that is received as lng as the payee s name/tin infrmatin n the undated Frm W-9 is identical t the payee s previusly certified name/tin already n file (e.g., if the undated Frm W-9 is received in respnse t a First B-Ntice slicitatin). In additin, payers shuld be permitted t systemically pre-ppulate the date n any fficial r substitute Frm W-9 that is prepared r generated by the payer fr the payee s signature, e.g., as part f the payee s accuntpening dcumentatin r subsequent accunt maintenance. Thus, if substitute W-9 certificatin language is included n a signature card fr a new accunt, r n a signature card used t add a new jint wner t an existing accunt, the date systemically pre-printed n the signature card shuld be presumed t be the date it was signed by the taxpayer. 3

4 W-9 Instructins: As stated abve, several years ag the industry requested that the Service issue a redesigned Frm W-9 and W-9 Instructins in draft frm and make them available fr public cmment fr a specific perid f time in rder t receive public input. The Service has granted the request in part by issuing the Draft and making it available fr a 30-day cmment perid, but has nt issued any draft instructins. It is imprtant that draft instructins be issued as quickly as pssible because the instructins that explain the cntents f the Draft are just as imprtant as the cntents f the Draft and wuld need t be viewed in cnjunctin with the Draft fr a better understanding and interpretatin f its cntents. Withut the draft instructins, many f the prvisins f the Draft raise all srts f questins. Sme f the answers may be included in the instructins and thers may nt. If the draft instructins are issued nw, it might eliminate the need fr sme f the cmments r suggestins that the Service might receive regarding the Draft and help taxpayers fcus n the issues that really need t be addressed befre the issuance f the final frm and instructins. We recmmend that the instructins clarify that: a freign citizen wh is a resident alien, either thrugh meeting the substantial presence test (as described in IRS Pub. 519) r by btaining a green card, is a U.S. persn fr tax purpses and therefre must cmplete Frm W-9 rather than Frm W-8BEN; payees wh check the Individual / Sle Prprietr entity type bx may nt als check the Exempt Payee checkbx; payees with an SSN r ITIN may nt check the Exempt Payee checkbx; payees may date the frm in any legible manner, i.e., by typing, stamping r hand-writing the date, r by cmpleting an n-line Frm W-9 certificatin n which the date is autmatically entered. payees check bx and TIN can be pre-ppulated based n the infrmatin gathered during the accunt pening prcess f the bank. fr a Disregarded Entity the instructins shuld: clarify that the TIN entered n the frm must be that f its single wner, even if the Disregarded Entity has its wn EIN fr payrll taxes r ther purpses; clarify that t be recgnized as exempt, the Disregarded Entity s single wner wuld have t enter an EIN, nt an SSN r ITIN; prvide a default if n checkbx is selected as the taxpayer s entity type. In that case, the W-9 certificatin wuld still be valid as lng as it cntained a name, TIN, signature and date, but the taxpayer wuld be treated as a U.S. nn-exempt recipient fr all types f incme, and it wuld nt be exempt frm backup withhlding r 1099 reprting; prvide a default if the LLC checkbx is selected as the recipient s entity type, but n legible D, C, S r P letter entry is made fr its tax classificatin. In that case, the W-9 certificatin wuld 4

5 still be valid as lng as it cntained a name, TIN, signature and date, but the LLC wuld be treated as a U.S. nn-exempt recipient fr all types f incme, and it wuld nt be exempt frm backup withhlding r 1099 reprting. Furthermre, the instructins shuld update the list f entity types that are exempt payees with respect t each type f payment. This is imprtant because sme entities are exempt fr certain payments and thers are nt. The list shuld als describe which entities are exempt frm Frm 1099-B Transfer Statement reprting under the new Cst Basis rules. Please feel free t cntact me at any time at fmrdi@aba.cm r t discuss these cmments further r answer any questins yu may have. Sincerely, Francisca N. Mrdi 5