Making Sense of Forms W-9, W-8BEN, W-8BEN-E and 8233: Is It the Right Form? Is It Valid?

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1 Making Sense of Forms W-9, W-8BEN, W-8BEN-E and 8233: Is It the Right Form? Is It Valid? Marianne Couch, J.D. COKALA Tax Information Reporting, LLC November 13, 2017

2 Purposes of Form W-9 New version of Form W-9 soon: Rev. November 2017 Solicits payee s: Name (for tax purposes) Type (individual, corporation, partnership, etc.) TIN Certifies that: the TIN provided is correct Required for certain types of payments and in a first B Notice situation Payee is not subject to backup withholding Payee is a U.S. person The FATCA code is correct 2

3 Form W-9 TIN Solicitation Rules If paying ( 1099-INT ) Bank-deposit Interest ( 1099-DIV ) Dividends ( 1099-B ) Gross broker proceeds ( 1099-OID ) Original Issue Discount ( 1099-PATR ) Patronage Dividends Or In a first B-notice situation The payee must certify under penalties of perjury that the TIN they've provided is correct. See IRC Sec You need written documentation (e.g., Form W-9) with the IRS certification language attesting to the validity of the TIN. If you do not have a certified TIN from the payee prior to making the payment, you must backup withhold 28% of the payment in federal income tax. 3

4 Form W-9 TIN Solicitation Rules For other payments (e.g., most of those reported on Form ( MISC The payee may provide the TIN either orally or in writing. No penalty of perjury signature is required. See IRC Sec Recommendation: written documentation is better, but the regs. do allow you to take the TIN over the phone, for example, or by , on an invoice, etc. If you do not have a TIN from the payee prior to making the payment, you must backup withhold 28% of the payment in federal income tax. Note, though, that there are reasons other than getting the TIN that you may need a signed Form W-9 from your vendor. 4

5 Reasons Other than Obtaining the TIN You Might Want a Signed Form W-9 To overcome a FATCA presumption of foreign status If making a U.S. source FATCA income payment to a U.S. corporation, U.S. financial institution (including insurance company), U.S. broker or swap dealer, or U.S. nominee or custodian, you must have documentation of U.S. status to avoid 30% FATCA withholding from and Form 1042-S reporting of these payments. Regulations allow you to accept various types of documentation (e.g., copy of Articles of Incorporation establishing U.S. status), but signed Form W-9 (attesting to U.S. status) is probably the easier documentation to obtain. 5

6 Reasons Other than Obtaining the TIN You Might Want a Signed Form W-9 If paying a U.S. vendor that has indicia of foreign status (e.g., foreign address; not per se foreign corporate indicator, see below), vendor must sign certification attesting to U.S. status to overcome presumption of foreign status. But note: indicators of foreign corporate status cannot be overcome. Ag, PLC, SA, SE, others These abbreviations tell you the vendor is a foreign corporation. This rule is referred to as the foreign corporation eyeball test. MUST treat these vendors as foreign. See excerpt of Sec EIN beginning with 98 also indicates probable foreign status. Explore with your vendor whether they are U.S. or non-u.s. 6

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14 Form W-8BEN Beneficial Owner (Individual) Current form: Rev. July 2017 Can accept Rev. Jan through January 2018 Purposes: Documents status as Non U.S. person Can be used to claim treaty benefits on payments that are not services (e.g., royalties, interest, dividends, etc.) No FATCA issues 14

15 Form W-8BEN (individuals) If using the form simply to document a payee s status as a non-u.s. person (i.e., there are no treaty claims or payment is documented as non-u.s. source income), beneficial owner needs to complete only: Line 1 (name) Line 2 (country of citizenship) Line 3 (permanent residence address; cannot be U.S.; may not be same as country of citizenship) Signature, printed name, date Date of birth and foreign TIN are required for financial accounts at U.S. offices of financial institutions. Note: Recently released Notice permits financial institutions to phase in the requirement to collect and report foreign TIN and date of birth. Notice is available at: 15

16 Form W-8BEN (individuals) - Treaty Claims Treaty claims on U.S. source FDAP income (e.g., interest, dividends, royalties, non-qualified scholarships, etc.) Treaty claims on U.S. source services income paid to individuals are made on Form 8233 Treaty must exist and must apply You will need to read treaty to make sure it applies Treaty section must be completed with all necessary information Line 10 must almost always be completed as most treaty articles will include conditions the beneficial owner must meet that are not otherwise addressed in line 9 If treaty applies, withhold at treaty rate (might be zero or some other amount less than 30%) Form must include U.S. or foreign TIN for treaty claim (except treaty claim on U.S. source non-qualified scholarships requires U.S. TIN) 16

17 (Rev. July 2017) November 12-14,

18 (Rev. July 2017) November 12-14,

19 (Rev. July 2017) November 12-14,

20 Form 8233 Used by individuals to make treaty claims on U.S. source services income (i.e., for services performed in the U.S.) Annual form Must be original unless submitted through electronic system (faxed and ed forms are not valid) This form requires a U.S. TIN; foreign TINs are insufficient for treaty claims on Form 8233 This form must be signed by both beneficial owner and payer This form must be sent to the IRS for verification of treaty claims within 5 days of payer s acceptance of it (usually counted from the day the payer signs the form) IRS has 10 days to respond to the claim; if they do not respond, payer can assume treaty claim is valid and release funds without withholding 20

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23 Form W-8BEN-E Entities, only. Current form is Rev. July 2017 Can accept Rev. April 2016 through January 2018 Includes sections regarding FATCA payments and sections regarding Chapter 3 payments. If making a U.S. source FATCA income payment (payments arising out of lending, investing and insurance activities) to a non-u.s. entity, the entity must provide you with the necessary FATCA certifications on the form. If payee does not provide necessary FATCA certifications, 30% FATCA withholding is required; payment(s) is/are reported on Form 1042-S. No Chapter 3 analysis is conducted If payment is not a FATCA payment, FATCA sections do not need to be completed. 23

24 Substitute Form W-8BEN-E If you are not making FATCA payments, you might want to consider using a substitute Form W-8BEN-E that does not include the FATCA sections. Makes the form a 1-page form. You and your staff will need to know when you cannot use the substitute form and must use the official 8-page IRS Form W- 8BEN-E (i.e., when you are making a FATCA payment). 24

25 Form W-8BEN-E If using form just to document vendor s status as a non-u.s. entity, it needs to complete only: Line 1 (name) Line 2 (country of incorporation or organization) Line 4 (type of entity for Chapter 3 purposes) Line 6 (permanent residence address) Line 7 (mailing address, if different than permanent address) Signature, printed name, date, capacity check box 25

26 Form W-8BEN-E Treaty Claim If the vendor is making a treaty claim on the payment, it must complete the lines noted on the previous slide plus Line 8 (U.S. TIN) or 9b (foreign TIN) Part III (treaty section) 14a and b must always be checked Beneficial owner must indicate which Limitations on Benefits provision it meets in line 14b unless claiming under a treaty that does not have an LOB Article Verify against IRS Table 4» 14c must be checked only if applicable (regarding certain interest and dividend payments) Line 15 will almost always need to be completed 26

27 (Rev. July 2017) November 12-14,

28 Form W-8BEN-E, page 1 - STUDY AND DISCUSSION NOTES 28

29 Form W-8BEN-E, page 2 - STUDY AND DISCUSSION NOTES 29

30 Form W-8BEN-E - STUDY AND DISCUSSION NOTES If entity omits the date, the payer that receives the form may date-stamp or fill in the date the form was received 30

31 Questions? Questions? Q uestions? 31