IRS Allows Additional Time To Withholding Agents To Apply New Entity Account Procedures

Notice 2014-59 announces the intention of the Department of the Treasury (Treasury) and the IRS to amend certain provisions of the temporary regulations published under sections 1441, 1442, and 6049 of the Internal Revenue Code (Code) on March 6, 2014, to provide modified applicability dates with respect to:

1. The standards of knowledge applicable to a withholding certificate or documentary evidence to document a payee that is an entity under §1.1441-7(b); and
2. The rules under §1.6049-5(c) providing the circumstances under which a withholding agent or payor may rely on documentary evidence provided by a payee instead of a withholding certificate to document the foreign status of the payee for purposes of chapters 3 and 61. 

The temporary coordination regulations in §1.1441-7(b) amend the standards of knowledge regarding the circumstances under which a withholding agent has reason to know that a payee’s claim of foreign status is unreliable or incorrect. These amendments were made to coordinate with the chapter 4 regulations and are consistent with the standards of knowledge that apply for purposes of chapter 4.
The temporary coordination regulations in §1.1441-7(b)(5) and (b)(8) modify the circumstances under which a withholding agent that is described in §1.1441-7(b)(3)(i) (including a financial institution) and that has obtained a withholding certificate or documentary evidence has reason to know that a claim of foreign status made by a direct account holder is unreliable or incorrect for purposes of chapters 3 and 61. In particular, the temporary coordination regulations provide additional U.S. indicia that will cause a withholding agent to have reason to know that a claim of foreign status by a direct account holder is unreliable or incorrect for purposes of chapters 3 and 61. 

The additional U.S. indicia are as follows:

1. The withholding agent’s classification of the account holder as a U.S. person in its account information;
2. A current U.S. telephone number for the account holder if the withholding agent has no telephone number for the account holder outside the United States; and
3. An unambiguous indication of a U.S. place of birth for an individual direct account holder on accompanying documentation or in the withholding agent’s account information.

See §1.1441-7(b)(5)(i), (b)(5)(ii), (b)(8)(ii), and (b)(8)(iii).

The temporary coordination regulations under §1.1441-7(b)(3)(ii) do not require a withholding agent to take into account these additional U.S. indicia for a preexisting obligation if the foreign status of the direct account holder was documented by the withholding agent for purposes of chapter 3 or chapter 61 before July 1, 2014, unless the withholding agent is notified of a change in circumstances with respect to the obligation or, in the case of an individual account holder, reviews documentation that contains a U.S. place of birth.

Prior to the issuance of these amendments, taxpayers may rely on this notice regarding the modified applicability dates. Notice 2014-59 will be in IRB IRB 2014-44 on October 27, 2014.

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