[Federal Register Volume 77, Number 76 (Thursday, April 19, 2012)]
[Rules and Regulations]
[Pages 23391-23395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9520]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[TD 9584]
RIN 1545-BJ01


Guidance on Reporting Interest Paid to Nonresident Aliens

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding the 
reporting requirements for interest that relates to deposits maintained 
at U.S. offices of certain financial institutions and is paid to 
certain nonresident alien individuals. These regulations will affect 
commercial banks, savings institutions, credit unions, securities 
brokerages, and insurance companies that pay interest on deposits.

DATES: Effective Date: These regulations are effective April 19, 2012.
    Applicability Date: These regulations apply to payments of interest 
made on or after January 1, 2013.

FOR FURTHER INFORMATION CONTACT: Kathryn Holman, (202) 622-3840 (not a 
toll free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control number 1545-1725. 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). The collection of information is 
mandatory and the respondents are commercial banks, savings 
institutions, credit unions, securities brokerages, and insurance 
companies that maintain deposit accounts for nonresident alien 
individuals.
    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. Information collected under 
these regulations will be return information as defined in 26 U.S.C. 
6103. Tax returns and return information are confidential as required 
by 26 U.S.C. 6103.

Background

    On January 7, 2011, the Treasury Department and the IRS published a 
notice of proposed rulemaking (REG 146097-09) (the 2011 proposed 
regulations) in the Federal Register (76 FR 1105, corrected by 76 FR 
2852, 76 FR 20595, and 76 FR 22064) under section 6049 of the Internal 
Revenue Code (Code). The 2011 proposed regulations withdrew proposed 
regulations that had been issued on August 2, 2002 (67 FR 50386) (the 
2002 proposed regulations). The 2002 proposed regulations would have 
required reporting of interest payments to nonresident alien 
individuals that are residents of certain specified countries. The 2011 
proposed regulations provide that payments of interest aggregating $10 
or more on a deposit maintained at a U.S. office of a financial 
institution and paid to any nonresident alien individual are subject to 
information reporting.
    Written comments were received by the Treasury Department and the 
IRS in response to the 2011 proposed regulations. A public hearing on 
the 2011 proposed regulations was held on May 18, 2011, at which 
further comments were received. All comments were considered and are 
available for public inspection at http://www.regulations.gov or upon 
request. After consideration of the written comments and the comments 
provided at the public hearing, the 2011 proposed regulations are 
adopted as revised by this Treasury decision.

Explanation and Summary of Comments

Objectives of This Regulatory Action

    The reporting required by these regulations is essential to the 
U.S. Government's efforts to combat offshore tax evasion for several 
reasons. First, it ensures that the IRS can, in appropriate 
circumstances, exchange information relating to tax enforcement with 
other jurisdictions. In order to ensure that U.S. taxpayers cannot 
evade U.S. tax by hiding income and assets offshore, the United States 
must be able to obtain information from other countries regarding 
income earned and assets held in those countries by U.S. taxpayers. 
Under present law, the measures available to assist the United States 
in obtaining this information include both treaty relationships and 
statutory provisions. The effectiveness of these measures depends 
significantly, however, on the United States' ability to reciprocate.
    The United States has constructed an expansive network of 
international agreements, including income tax or other conventions and 
bilateral agreements relating to the exchange of tax information 
(collectively referred to as information exchange agreements), which 
provide for the exchange of information related to tax enforcement 
under appropriate circumstances. These information exchange 
relationships are based on cooperation and reciprocity. A 
jurisdiction's willingness to share information with the IRS to combat 
offshore tax evasion by U.S. taxpayers depends, in large part, on the 
ability of the IRS to exchange information that will assist that 
jurisdiction in combating offshore tax evasion by its own residents. 
These regulations, by requiring reporting of deposit interest to the 
IRS, will ensure that the IRS is in a position to exchange such 
information reciprocally with a treaty partner when it is appropriate 
to do so.

[[Page 23392]]

    Second, in 2010, Congress supplemented the established network of 
information exchange agreements by enacting, as part of the Hiring 
Incentives to Restore Employment Act of 2010 (Pub. L. 111-147), 
provisions commonly known as the Foreign Account Tax Compliance Act 
(FATCA) that require overseas financial institutions to identify U.S. 
accounts and report information (including interest payments) about 
those accounts to the IRS. In many cases, however, the implementation 
of FATCA will require the cooperation of foreign governments in order 
to overcome legal impediments to reporting by their resident financial 
institutions. Like the United States, those foreign governments are 
keenly interested in addressing offshore tax evasion by their own 
residents and need tax information from other jurisdictions, including 
the United States, to support their efforts. These regulations will 
facilitate intergovernmental cooperation on FATCA implementation by 
better enabling the IRS, in appropriate circumstances, to reciprocate 
by exchanging information with foreign governments for tax 
administration purposes.
    Finally, the reporting of information required by these regulations 
will also directly enhance U.S. tax compliance by making it more 
difficult for U.S. taxpayers with U.S. deposits to falsely claim to be 
nonresidents in order to avoid U.S. taxation on their deposit interest 
income.

International Standard for Transparency and Information Exchange

    Under the international standard for transparency and exchange of 
information, which is reflected in the Organisation for Economic 
Cooperation and Development (OECD) Model Agreement on Exchange of 
Information on Tax Matters, the OECD Model Tax Convention, and the 
United Nations Model Double Tax Convention between Developed and 
Developing Countries, exchange of tax information cannot be limited by 
domestic bank secrecy laws or the absence of a specific domestic tax 
interest in the information to be exchanged. Accordingly, under this 
global standard a country cannot refuse to share tax information based 
on domestic laws that do not require banks to share the information. In 
addition, under the global standard, a country cannot opt out of 
information exchange based on the fact that the country does not itself 
need the information to enforce its own tax rules. Thus, even countries 
that do not impose income taxes, and therefore do not have tax 
enforcement concerns, have entered into information exchange agreements 
to provide information about the accounts of nonresidents.

Comments Regarding Confidentiality and Improper Use of Information

    Some comments on the 2011 proposed regulations expressed concerns 
that the information required to be reported under those regulations 
might be misused. For example, comments expressed concern that deposit 
interest information may be shared with a country that does not have 
laws in place to protect the confidentiality of the information 
exchanged or that would use the information for purposes other than the 
enforcement of its tax laws. These comments further suggested that 
these concerns could affect nonresident alien investors' decisions 
about the location of their deposits.
    The Treasury Department and the IRS believe that the concerns 
raised by the comments are addressed by existing legal limitations and 
administrative safeguards governing tax information exchange. As 
discussed herein, information reported pursuant to these regulations 
will be exchanged only with foreign governments with which the United 
States has an agreement providing for the exchange and when certain 
additional requirements are satisfied. Even when such an agreement 
exists, the IRS is not compelled to exchange information, including 
information collected pursuant to these regulations, if there is 
concern regarding the use of the information or other factors exist 
that would make exchange inappropriate.
    First, information reported pursuant to these regulations is return 
information under section 6103. Section 6103 imposes strict 
confidentiality rules with respect to all return information. Moreover, 
section 6103(k)(4) allows the IRS to exchange return information with a 
foreign government only to the extent provided in, and subject to the 
terms and conditions of an information exchange agreement. Thus, the 
IRS can share the information reported under these regulations only 
with foreign governments with which the United States has an 
information exchange agreement. Absent such an agreement, the IRS is 
statutorily barred from sharing return information with another 
country, and these regulations cannot and do not change that rule.
    Second, consistent with established international standards, all of 
the information exchange agreements to which the United States is a 
party require that the information exchanged under the agreement be 
treated and protected as secret by the foreign government. In addition, 
information exchange agreements generally prohibit foreign governments 
from using any information exchanged under such an agreement for any 
purpose other than the purpose of administering, collecting, and 
enforcing the taxes covered by the agreement. Accordingly, under these 
agreements, neither country is permitted to release the information 
shared under the agreement or use it for any other law enforcement 
purposes.
    Third, consistent with the international standard for information 
exchange and United States law, the United States will not enter into 
an information exchange agreement unless the Treasury Department and 
the IRS are satisfied that the foreign government has strict 
confidentiality protections. Specifically, prior to entering into an 
information exchange agreement with another jurisdiction, the Treasury 
Department and the IRS closely review the foreign jurisdiction's legal 
framework for maintaining the confidentiality of taxpayer information. 
In order to conclude an information exchange agreement with another 
country, the Treasury Department and the IRS must be satisfied that the 
foreign jurisdiction has the necessary legal safeguards in place to 
protect exchanged information and that adequate penalties apply to any 
breach of that confidentiality.
    Finally, even if an information exchange agreement is in effect, 
the IRS will not exchange information on deposit interest or otherwise 
with a country if the IRS determines that the country is not complying 
with its obligations under the agreement to protect the confidentiality 
of information and to use the information solely for collecting and 
enforcing taxes covered by the agreement. The IRS also will not 
exchange any return information with a country that does not impose tax 
on the income being reported because the information could not be used 
for the enforcement of tax laws within that country.
    In addition, the IRS has options regarding the appropriate form of 
exchange. For example, the IRS might exchange information with another 
jurisdiction only upon specific request. In the case of specific 
exchange requests, the IRS evaluates the requesting country's current 
practices with respect to information confidentiality. The IRS also 
requires the requesting country to explain the intended permitted use 
of the information and justify the relevance of that information to the 
permitted use.

[[Page 23393]]

Alternatively, in appropriate circumstances, the IRS might exchange 
certain information on an automatic basis. The IRS currently exchanges 
deposit interest information on an automatic basis with only one 
jurisdiction (Canada). The IRS will not enter into a new automatic 
exchange relationship with a jurisdiction unless it has reviewed the 
country's policies and practices and has determined that such an 
exchange relationship is appropriate. Further, the IRS generally will 
not enter into an automatic exchange relationship with respect to the 
information collected under these regulations unless the other 
jurisdiction is willing and able to reciprocate effectively.
    The Treasury Department and the IRS believe that the legal and 
administrative safeguards described in the preceding paragraphs 
regarding the use of information collected under these regulations 
should adequately address the concerns identified by the comments and, 
therefore, these regulations should not significantly impact the 
investment and savings decisions of the vast majority of nonresidents 
who are aware of and understand these safeguards and existing law and 
practice. Nevertheless, to enhance awareness and further address 
concerns, these final regulations revise the 2011 proposed regulations 
to require reporting only in the case of interest paid to a nonresident 
alien individual resident in a country with which the United States has 
in effect an information exchange agreement pursuant to which the 
United States agrees to provide, as well as receive, information and 
under which the competent authority is the Secretary of the Treasury or 
his delegate.
    For this purpose, the Treasury Department and the IRS will publish 
a Revenue Procedure contemporaneously with these final regulations 
specifically identifying the countries with which the United States has 
in force such an information exchange agreement. The Revenue Procedure 
will be updated as appropriate. With respect to any calendar year, 
payors will only be required to report interest on deposits maintained 
at an office within the United States and paid to a nonresident alien 
individual who is a resident of a country identified in the Revenue 
Procedure as of December 31 of the prior calendar year as being a 
country with which the United States has in effect such an information 
exchange agreement. To address any potential burden associated with 
reporting on this basis, the final regulations provide that for any 
year for which the information return under Sec.  1.6049-4(b)(5) is 
required, a payor may elect to report interest payments to all 
nonresident alien individuals.
    As previously discussed, the identification of a country as having 
an information exchange agreement with the United States does not 
necessarily mean that the information collected under these regulations 
will be reported to such foreign jurisdiction. As an additional measure 
to further increase awareness among concerned nonresidents regarding 
the IRS' use of information collected under these regulations, the 
Revenue Procedure also will include a second list identifying the 
countries with which the Treasury Department and the IRS have 
determined that it is appropriate to have an automatic exchange 
relationship with respect to the information collected under these 
regulations. This determination will be made only after further 
assessment of a country's confidentiality laws and practices and the 
extent to which the country is willing and able to reciprocate.
    In addition, in response to comments, and given the information 
exchange practices described in the preceding paragraphs and the 
information that will be available in the Revenue Procedure, these 
final regulations eliminate the requirement in the 2011 proposed 
regulations for financial institutions to include in the information 
statement provided to nonresident alien individuals a statement 
informing the individual that the information may be furnished to the 
government of the country where the recipient resides. In addition, 
these final regulations clarify that a payor or middleman may rely on 
the permanent residence address provided on a valid Form W-8BEN, 
``Beneficial Owners Certificate of Foreign Status for U.S. Tax 
Withholding'', for purposes of determining the country of residence of 
a nonresident alien to whom reportable interest is paid unless the 
payor or middleman knows or has reason to know that such documentation 
of the country of residence is unreliable or incorrect. The final 
regulations also modify Sec.  31.3406(g)-1 of the proposed regulations 
to clarify that, consistent with the backup withholding rules 
generally, a payment of interest described in Sec.  1.6049-8(a) is not 
subject to withholding under section 3406 if the payor may treat the 
payee as a foreign person, without regard to whether the payor reported 
such interest (although a payor may be subject to penalties if it fails 
to report as required). As under the prior regulations requiring the 
reporting of interest paid to Canadian non-resident alien individuals, 
the final regulations define interest subject to reporting to mean 
interest paid on deposits as defined under section 871(i)(2)(A) 
(including deposits with persons carrying on a banking business, 
deposits with certain savings institutions, and certain amounts held by 
insurance companies under agreements to pay interest thereon).

Comments Regarding Authority and Congressional Intent

    Some comments expressed the view that the Treasury Department and 
the IRS lack the authority to require the reporting required under the 
2011 proposed regulations, or that the 2011 proposed regulations are 
contrary to Congressional intent. The relevant statutory provisions 
expressly contemplate that the Treasury Department and the IRS have 
authority to require reporting on deposit interest paid to 
nonresidents. Section 6049(a) provides generally for reporting with 
respect to interest payments. Section 6049(b)(2)(B) and (5) provides 
that, except to the extent otherwise provided in regulations, 
reportable interest does not include interest paid to nonresident alien 
individuals on deposits described in section 871(i)(2)(A). Section 
6049(b)(2)(B) and (5) thus provides express authority for the Treasury 
Department and the IRS to issue regulations requiring reporting of such 
interest.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It also has been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations.
    When an agency promulgates a final rule, the Regulatory Flexibility 
Act, 5 U.S.C. chapter 6 (RFA), requires the agency to prepare a final 
regulatory flexibility analysis describing the impact of the final rule 
on small entities. 5 U.S.C. 604. Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing a regulatory flexibility 
analysis, if the final rule is not expected to have a significant 
economic impact on a substantial number of small entities.
    These regulations impose a collection of information, and thus, the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) applies. It is hereby 
certified that the collection of information contained in these 
regulations will not have a

[[Page 23394]]

significant economic impact on a substantial number of small entities.
    The preamble to the 2011 proposed regulations sets forth an 
analysis of the number of small entities that may be required to report 
under these regulations. Although this rule may affect a substantial 
number of small entities, the IRS has determined that the impact on 
entities affected by these final regulations will not be significant.
    Some comments expressed concern that the regulations would impose a 
new administrative burden on U.S. financial institutions. In addition, 
some comments objected that collecting and reporting this information 
imposes burdens on certain types of financial institutions, including 
community banks and banks in certain states that have a larger 
percentage of customers who are nonresident alien individuals.
    The Treasury Department and the IRS disagree. Under existing law, 
all U.S. financial institutions have responsibilities to withhold on 
and report with respect to depositors who are U.S. citizens, U.S. 
resident individuals, and Canadian resident individuals, and have 
developed the systems to perform such withholding and reporting.
    All nonresident alien individual account holders who maintain 
accounts in the United States are already required to complete a Form 
W-8BEN, declaring their non-U.S. status and the country in which they 
reside. U.S. financial institutions can use their existing W-8 
information to produce Form 1042-S disclosures for the relevant 
nonresident alien individual account holders. Nearly all U.S. banks and 
other financial institutions have automated systems to produce Form 
1099-INT, ``Interest Income'', for U.S. accountholders and Form 1042-S, 
``Foreign Person's U.S. Source Income Subject to Withholding'', for 
Canadian accountholders. As a result, the information collection 
requirements in these regulations build on reporting and information 
collection systems familiar to and currently used by U.S. financial 
institutions, including small business entities. The amount of time 
required to complete the Form 1042 and Form 1042-S is minimal, and the 
statement that is required to be collected is brief. Accordingly, it 
should not be a significant burden to adapt those systems to report 
with respect to depositors who are resident in other countries with 
which the United States has an information exchange agreement. 
Therefore, a regulatory flexibility analysis is not required.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these final regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small businesses. The Chief Counsel for Advocacy of 
the Small Business Administration did not comment on the notice of 
proposed rulemaking.

Drafting Information

    The principal author of the regulations is Kathryn Holman, Office 
of Associate Chief Counsel (International). However, other personnel 
from the Treasury Department and the IRS participated in their 
development.

List of Subjects

26 CRF 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 31 are amended as follows:

PART 1--INCOME TAXES

0
 Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *


0
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 certain 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 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 recipient). To determine whether an 
information return is required for original issue discount, see 
Sec. Sec.  1.6049-5(f) and 1.6049-8(a).
    (ii) Effective/applicability date. Paragraph (b)(5)(i) of this 
section shall be applicable for payments made on or after January 1, 
2013. (For interest paid to a Canadian nonresident alien individual on 
or before December 31, 2012, see paragraph (b)(5) of this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2000.)
* * * * *

0
Par. 3. Section 1.6049-5 is amended as follows:
0
1. In paragraph (b)(12), the last sentence is revised.
0
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 
on or after January 1, 2013, to a nonresident alien individual to the 
extent provided in Sec.  1.6049-8.
* * * * *
    (f) * * * Original issue discount on an obligation (including an 
obligation with a maturity of not more than six 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 
deposit interest paid on or after January 1, 2013, to certain 
nonresident alien individuals).
* * * * *

0
Par. 4. Section 1.6049-6 is amended as follows:
0
1. The paragraph heading and text of paragraph (e)(4) is revised.
0
2. In paragraph (e)(5), the paragraph heading and first sentence are 
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

[[Page 23395]]

payments of deposit interest to certain nonresident alien individuals) 
paid on or after January 1, 2013, 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.
    (5) Effective/applicability date. Paragraph (e)(4) of this section 
applies to payee statements reporting payments of deposit interest to 
nonresident alien individuals paid on or after January 1, 2013. * * * 
(For interest paid to a Canadian nonresident alien individual on or 
before December 31, 2012, see paragraph (e)(4) of this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2000.)

0
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 certain 
nonresident aliens.

    (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 
described in section 871(i)(2)(A) that relates to a deposit maintained 
at an office within the United States, and that is paid to a 
nonresident alien individual who is a resident of a country that is 
identified, in an applicable revenue procedure (see Sec.  601.601(d)(2) 
of this chapter) as of December 31 prior to the calendar year in which 
the interest is paid, as a country with which the United States has in 
effect an income tax or other convention or bilateral agreement 
relating to the exchange of tax information within the meaning of 
section 6103(k)(4), under which the competent authority is the 
Secretary of the Treasury or his delegate and the United States agrees 
to provide, as well as receive, information. Notwithstanding the 
foregoing, for purposes of Sec. Sec.  1.6049-4, 1.6049-6, and this 
section, for any year for which the information return under Sec.  
1.6049-4(b)(5) is required, a payor may elect to treat interest as 
including all interest described in section 871(i)(2)(A) that relates 
to a deposit maintained at an office within the United States and that 
is paid to any nonresident alien individual. A payor shall make this 
election by reporting all such interest. For purposes of the 
regulations under section 6049 (Sec. Sec.  1.6049-1 through 1.6049-8), 
a nonresident alien individual is a person described in section 
7701(b)(1)(B). A payor or middleman may rely upon the permanent 
residence address provided on a valid Form W-8BEN, ``Beneficial Owners 
Certificate of Foreign Status for U.S. Tax Withholding'', to determine 
the country in which a nonresident alien individual is resident unless 
such payor or middleman knows or has reason to know that such 
documentation of the country of residence is unreliable or incorrect. 
Amounts described in this paragraph (a) are not subject to backup 
withholding under section 3406 if the payor may treat the payee as a 
foreign beneficial owner or foreign payee under the rules of Sec.  
1.6049-5(b)(12). 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 the payor must also backup withhold under section 
3406. (For interest paid to a Canadian nonresident alien individual on 
or before December 31, 2012, 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

0
Par. 6. The authority citation for part 31 continues to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 7. In Sec.  31.3406(g)-1, paragraph (d) is revised to read as 
follows:


Sec.  31.3406(g)-1  Exception for payments to certain payees and 
certain other payments.

* * * * *
    (d) Reportable payments made to nonresident alien individuals. A 
payment of interest to a nonresident alien individual that is described 
in Sec.  1.6049-(8)(a) of this chapter is not subject to withholding 
under section 3406 if the payor may treat the payee as a foreign 
beneficial owner or foreign payee under the rules of Sec.  1.6049-
5(b)(12). (For interest paid to a Canadian nonresident alien individual 
on or before December 31, 2012, 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.
    Approved: April 12, 2012.
Emily S. McMahon,
(Acting) Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2012-9520 Filed 4-17-12; 4:15 pm]
BILLING CODE 4830-01-P