[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Proposed Rules]
[Pages 1105-1108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-82]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 31
[REG-146097-09]
RIN 1545-BJ01
Guidance on Reporting Interest Paid to Nonresident Aliens
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; notice of public hearing; and
withdrawal of previously proposed rulemaking.
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SUMMARY: This document contains proposed regulations that provide
guidance on the reporting requirements for interest on deposits
maintained at U.S. offices of certain financial institutions and paid
to nonresident alien individuals. These proposed regulations affect
persons making payments of interest with respect to such deposits. This
document also provides a notice of public hearing on these proposed
regulations and withdraws the notice of proposed rulemaking published
on August 2, 2002 (67 FR 50386).
DATES: Written or electronic comments must be received by April 7,
2011. Outlines of topics to be discussed at the public hearing
scheduled for April 28, 2011, at 10 a.m. must be received by April 8,
2011. The proposed rule published on August 2, 2002 is withdrawn as of
January 7, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-146097-09), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
146097-09), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC 20224 or sent electronically via the
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
146097-09). The public hearing will be held in auditorium of the
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington,
DC.
[[Page 1106]]
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Kathryn Holman, (202) 622-3840; concerning submissions of comments, the
hearing, and/or to be placed on the building access list to attend the
hearing, [email protected], (202) 622-7180 (not toll
free numbers).
Paperwork Reduction Act
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collections of information should be
sent to the Office of Management and Budget, Attn: Desk Office for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on the collection of information should
be received by March 8, 2011. Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance and purchase of service to provide information.
The collection of information in these proposed regulations is in
Sec. 1.6049-4(b)(5)(i) and Sec. 1.6049-6(e)(4)(i) and (ii). This
information is required to determine if taxpayers have properly
reported amounts received as income. The collection of information is
mandatory. The likely respondents are businesses and other for-profit
institutions.
Estimated total annual reporting burden: 500 hours.
The estimated annual burden per respondent: 15 minutes.
Estimated number of respondents: 2,000.
Estimated annual frequency of responses: Annually.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential as required by 26 U.S.C. 6103.
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
On January 17, 2001, the IRS and Treasury Department published a
notice of proposed rulemaking (REG 126100-00) in the Federal Register
(66 FR 3925, corrected by 66 FR 15820 and 66 FR 16019) under Section
6049 (the 2001 proposed regulations), which would provide that U.S.
bank deposit interest paid to any nonresident alien individual must be
reported annually to the IRS. On August 2, 2002, the Treasury
Department and the IRS published a notice of proposed rulemaking (REG-
133254-02) in the Federal Register (67 FR 50386) which withdrew these
regulations and proposed narrower regulations (the 2002 regulations)
that would require reporting only on interest payments to nonresident
alien individuals that are residents of certain designated countries
or, at the option of the payor, on interest payments to all nonresident
alien recipients of bank deposit interest. Under the 2002 regulations
currently in effect, reporting of U.S. bank deposit interest is
required only if the interest is paid to a U.S. person or a nonresident
alien individual who is a resident of Canada. These proposed
regulations withdraw the 2002 regulations and provide new proposed
regulations that extend the information reporting requirement to
include bank deposit interest paid to nonresident alien individuals who
are residents of any foreign country.
This extension is appropriate for several reasons. First, since the
2002 proposed regulations were released, there is a growing global
consensus regarding the importance of cooperative information exchange
for tax purposes that has developed. Significant agreements have been
reached on international standards for the exchange of information,
including, for example, the understanding that information exchange
will not be limited by bank secrecy or the absence of a domestic tax
interest. Second, requiring routine reporting to the IRS of all U.S.
bank deposit interest paid to any nonresident alien individual will
further strengthen the United States exchange of information program,
consistent with adequate provisions for reciprocity, usability, and
confidentiality in respect of this information. Finally, this extension
will help to improve voluntary compliance by U.S. taxpayers by making
it more difficult to avoid the U.S. information reporting system (such
as through false claims of foreign status).
In addition to requiring reporting of U.S. bank deposit interest
paid to any nonresident alien individual, the proposed regulations also
make the following minor changes and clarifications. Section 1.6049-6
provides that a copy of Form 1042-S, ``Foreign Person's U.S. Source
Income Subject to Withholding'', must be furnished to the recipient for
interest paid on deposits maintained at a bank's office within the
United States. Section 1.6049-6(e)(4) has been revised to clarify that
the payor or middleman can satisfy this requirement by furnishing a
copy of Form 1042-S either in person or to the last known address of
the recipient.
Proposed Effective Date
These regulations are proposed to apply to payments made after
December 31 of the year in which they are published as final
regulations in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to this regulation.
These regulations impose a collection of information on small
entities, and the Regulatory Flexibility Act (5 U.S.C. chapter 6)
applies. This rule regulates commercial banks, savings institutions,
credit unions, and securities brokerages. The Small Business
Administration (SBA) has established size standards for types of
economic activities which are classified based on the North American
Industry Classification Codes (NAICS). The regulations specifying size
standards are set forth in Title 13, Code of Federal Regulations, part
121 (13 CFR part 121), Small Business Size Regulations. The NAICS Code
for small commercial banks, savings institutions, credit unions, and
securities brokerages
[[Page 1107]]
is specified at 13 CFR 121.201. Pursuant to subsectors 522110, 522120,
and 522130 of NAICS 2007, a small commercial bank, savings institution,
or credit union is one with $175 million or less in assets. Pursuant to
subsector 523120 of NAICS 2007, a small securities brokerage is one
with receipts of less than $7 million. Because this rule will affect
all institutions that maintain accounts for nonresident alien
individuals, this rule may affect a substantial number of small
entities.
The U.S. Census Bureau American FactFinder provides data based on
the 2007 Economic Census released November 24, 2009 including the
number of establishments and the annual revenue of the establishments
within each NAICS Code. According to this data, for Sector 52:
ECO752I1: Finance and Insurance Industry Series, there were 94,192
commercial banking establishments with revenue of approximately
$609,748,098,000, 16,098 savings institutions with revenue of
approximately $91,626,050,000, 17,984 credit unions with revenue of
approximately $55,521,199,000, and 30,989 NAICS Code securities
brokerages with revenue of approximately $167,337,807,000. It is
estimated that approximately 25,000 commercial banks, 4,000 savings
banks, and 4,000 credit unions with less than $175,000,000 in assets,
and 15,000 securities brokerages with receipts of less than $7,000,000
that would be classified as small businesses.
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. Section 605, the Chief Counsel certifies that this rule will not
have a significant economic impact on a substantial number of small
entities. This conclusion is based on all of the following. The
depository accounts, the interest on which is subject to reporting
under these regulations, tend to be with larger financial institutions
operating in the United States, and therefore the number of small
entities that will be required to undertake this collection of
information is expected to be limited. Banks are already required to
gather the underlying information from nonresident aliens on Form W-8,
so there will be no change in the collection of information. Currently
under the 2002 regulations, banks, including small financial
institutions, are required to report this information to the IRS with
respect to Canadian account holders. This rule would simply extend the
reporting requirement to all nonresident aliens. The reporting required
by this rule would be done on Form 1042 and Form 1042-S. This rule also
requires that institutions prepare and deliver a statement to
nonresident alien individuals to the effect that the information on the
1042 form is being furnished to the IRS and may be furnished to the
government of the foreign country where the recipient resides. The
amount of time required to complete the Form 1042 and Form 1042-S is
brief, and the statement that is required to be collected is brief.
The IRS requests information regarding the economic impact of this
rule on small commercial banks, savings institutions, credit unions,
and small securities brokerages engaged in business involving payment
of bank deposit interest to a nonresident alien. The IRS invites
specific comments on the economic impact of compliance from members of
the public who believe there will be a significant economic impact on
small businesses that are regulated by this rule. Pursuant to section
7805(f) of the Internal Revenue Code, this regulation has been
submitted to the Chief Counsel of Advocacy of the Small Business
Administration for comment on its impact on small businesses.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The IRS and Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and
copying.
A public hearing has been scheduled for April 28, 2011, beginning
at 10 a.m. in the auditorium of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit electronic or
written comments and an outline of the topics to be discussed and the
time to be devoted to each topic (signed original and eight (8) copies)
by April 8, 2011. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for receiving outlines has
passed. Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
The principal author of the regulations is Kathryn Holman, Office
of Associate Chief Counsel (International). However, other personnel
from the IRS and Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social Security,
Unemployment compensation.
Withdrawal of Proposed Amendments
Accordingly, under the authority of 26 U.S.C. 7805, the proposed
amendment to 26 CFR parts 1 and 31 that was published in the Federal
Register on Friday, August 2, 2002 (67 FR 50386) is withdrawn.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 31 are proposed to be amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In Sec. 1.6049-4, paragraph (b)(5) is revised to read as
follows:
Sec. 1.6049-4 Return of information as to interest paid and original
issue discount includible in gross income after December 31, 1982.
* * * * *
(b) * * *
(5) Interest payments to nonresident alien individuals--(i) General
rule. In the case of interest aggregating $10 or more paid to a
nonresident alien individual (as defined in section 7701(b)(1)(B)) that
is reportable under Sec. 1.6049-8(a), the payor shall make an
information return on Form 1042-S, ``Foreign Person's U.S. Source
Income Subject to Withholding'', for the calendar year in which the
interest is paid. The payor or middleman shall prepare and file Form
1042-S at the
[[Page 1108]]
time and in the manner prescribed by section 1461 and the regulations
under that section and by the form and its accompanying instructions.
See Sec. Sec. 1.1461-1(b) (rules regarding the preparation of a Form
1042) and 1.6049-6(e)(4) (rules for furnishing a copy of the Form 1042-
S to the payee). To determine whether an information return is required
for original issue discount, see Sec. Sec. 1.6049-5(f) and 1.6049-
8(a). The Commissioner may by ruling or other administrative
pronouncement prescribe rules pursuant to a treaty or executive
agreement for uniform formatting, standards for sharing information,
and for usability, reciprocity, and confidentiality of taxpayer
information.
(ii) Effective/applicability date. Paragraph (b)(5)(i) of this
section shall be effective for payments made after December 31 of the
year in which the final regulations are published in the Federal
Register. (For interest paid to a Canadian nonresident alien individual
on or before December 31 of the year in which final regulations are
published in the Federal Register, see paragraph (b)(5) of this section
as in effect and contained in 26 CFR part 1 revised April 1, 2000.)
* * * * *
Par. 3. Section 1.6049-5 is amended as follows:
1. In paragraph (b)(12) the last sentence is revised.
2. In paragraph (f) the last sentence is revised.
The revisions read as follows:
Sec. 1.6049-5 Interest and original issue discount subject to
reporting after December 31, 1982.
* * * * *
(b) * * *
(12) * * * This paragraph (b)(12) does not apply to interest paid
after December 31 of the year in which the final regulations are
published in the Federal Register to a nonresident alien individual as
provided in Sec. 1.6049-8.
* * * * *
(f) * * * Original issue discount on an obligation (including an
obligation with a maturity of not more than 6 months from the date of
original issue) held by a nonresident alien individual or foreign
corporation is interest described in paragraph (b)(1)(vi)(A) or (B) of
this section and, therefore is not interest subject to reporting under
section 6049 unless it is described in Sec. 1.6049-8(a) (relating to
bank deposit interest paid after December 31 of the year in which the
final regulations are published in the Federal Register to a
nonresident alien individual).
* * * * *
Par. 4. Section 1.6049-6 is amended as follows:
1. Paragraph (e)(4) is revised.
2. In paragraph (e)(5), the first sentence is revised and a new
sentence is added at the end of the paragraph.
The additions and revisions read as follows:
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
* * * * *
(e) * * *
(4) Special rule for amounts described in Sec. 1.6049-8(a). In the
case of amounts described in Sec. 1.6049-8(a) (relating to payments of
deposit interest to nonresident alien individuals) paid after December
31 of the year in which the final regulations are published in the
Federal Register, any person who makes a Form 1042-S, ``Foreign
Person's U.S. Source Income Subject to Withholding'', under section
6049(a) and Sec. 1.6049-4(b)(5) shall furnish a statement to the
recipient either in person or by first class mail to the recipient's
last known address. The statement shall include a copy of the Form
1042-S required to be prepared pursuant to Sec. 1.6049-4(b)(5) and a
statement to the effect that the information on the form is being
furnished to the United States Internal Revenue Service and may be
furnished to the government of the foreign country where the recipient
resides.
(5) Effective/applicability date. Paragraph (e)(4) of this section
applies to payee statements reporting payments of deposit interest to
nonresident alien individuals paid after December 31 of the year in
which the final regulations are published in the Federal Register. * *
* (For interest paid to a Canadian nonresident alien individual on or
before December 31 of the year in which final regulations are published
in the Federal Register, see paragraph (e)(4) of this section as in
effect and contained in 26 CFR part 1 revised April 1, 2000.)
Par. 5. In Sec. 1.6049-8 the section heading and paragraph (a) are
revised to read as follows:
Sec. 1.6049-8 Interest and original issue discount paid to
nonresidents.
(a) Interest subject to reporting requirement. For purposes of
Sec. Sec. 1.6049-4, 1.6049-6, and this section and except as provided
in paragraph (b) of this section, the term interest means interest paid
to a nonresident alien individual after December 31 of the year in
which the final regulations are published in the Federal Register,
where the interest is described in section 871(i)(2)(A) with respect to
a deposit maintained at an office within the United States. For
purposes of the regulations under section 6049, a nonresident alien
individual is a person described in section 7701(b)(1)(B). The payor or
middleman may rely upon a valid Form W-8BEN, ``Beneficial Owners
Certificate of Foreign Status for U.S. Tax Withholding'' to determine
whether the payment is made to a nonresident alien individual.
Generally, amounts described in this paragraph (a) are not subject to
backup withholding under section 3406. See Sec. 31.3406(g)-1(d) of
this chapter. However, if the payor or middleman does not have either a
valid Form W-8BEN or valid Form W-9, ``Request for Taxpayer
Identification Number and Certification'', the payor or middleman must
report the payment as made to a U.S. non-exempt recipient if it must so
treat the payee under the presumption rules of Sec. 1.6049-5(d)(2) and
Sec. 1.1441-1(b)(3)(iii) and must also backup withhold under section
3406. (For interest paid to a Canadian nonresident alien individual on
or before December 31 of the year in which final regulations are
published in the Federal Register, see paragraph (a) of this section as
in effect and contained in 26 CFR part 1 revised April 1, 2000.)
* * * * *
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 6. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 7. In Sec. 31.3406(g)-1, paragraph (d) is revised to read as
follows:
Sec. 31.3406(g)-1 Exceptions for payments to certain payees and
certain other payments.
* * * * *
(d) Reportable payments made to nonresident alien individuals. A
payment of interest that is reported on Form 1042-S, ``Foreign Person's
U.S. Source Income Subject to Withholding,'' as paid to a nonresident
alien individual under Sec. 1.6049-8(a) of this chapter is not subject
to withholding under section 3406. (For interest paid to a Canadian
nonresident alien individual on or before December 31 of the year in
which final regulations are published in the Federal Register, see
paragraph (d) of this section as in effect and contained in 26 CFR part
1 revised April 1, 2000.)
* * * * *
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-82 Filed 1-6-11; 8:45 am]
BILLING CODE 4830-01-P