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IRS final regulations regarding withholding certificates like the W-8BEN

first_imgEarlier this month, the Internal Revenue Service (IRS) published final regulations that explained due diligence and reporting rules applicable to persons, including credit unions, making U.S. source payments to foreign persons. The final regulations, among other things, clarified the requirement for a withholding agent to obtain a foreign taxpayer identification number (foreign TIN) and date of birth on a withholding certificate.Background InformationBefore getting into what the regulation did, it may be helpful to understand what some of these terms mean. IRS Publication 515 provides background information about the withholding of tax for foreign persons. It defines a foreign person as “a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U.S. person.” On the other hand, the IRS’s definition of a U.S. person includes a citizen or resident of the United States, several types of domestic entities, and anyone that is not a foreign person. U.S. source income is income earned within the United States. A withholding agent is “a U.S. or foreign person, in whatever capacity acting, that has control, receipt, custody, disposal, or payment of an amount subject to chapter 3 withholding.”IRS Publication 515 notes that foreign persons are usually subject to a U.S. tax of 30% on U.S. source income unless there is an applicable exemption. If the credit union has members that are foreign persons under the IRS’s definition, it is possible that the members could be subject to a 30% tax on any U.S. source income payments made by the credit union (e.g., the payment of dividends). ShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblr continue reading »last_img

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