[Federal Register Volume 78, Number 18 (Monday, January 28, 2013)]
[Rules and Regulations]
[Pages 5873-5995]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01025]



[[Page 5873]]

Vol. 78

Monday,

No. 18

January 28, 2013

Part II





Department of the Treasury





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 Internal Revenue Service





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26 CFR Parts 1 and 301





 Regulations Relating to Information Reporting by Foreign Financial 
Institutions and Withholding on Certain Payments to Foreign Financial 
Institutions and Other Foreign Entities; Final Rule

Federal Register / Vol. 78 , No. 18 / Monday, January 28, 2013 / 
Rules and Regulations

[[Page 5874]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9610]
RIN 1545-BK68


Regulations Relating to Information Reporting by Foreign 
Financial Institutions and Withholding on Certain Payments to Foreign 
Financial Institutions and Other Foreign Entities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final Regulations.

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SUMMARY: This document contains final regulations under chapter 4 of 
Subtitle A (sections 1471 through 1474) of the Internal Revenue Code of 
1986 (Code) regarding information reporting by foreign financial 
institutions (FFIs) with respect to U.S. accounts and withholding on 
certain payments to FFIs and other foreign entities. These regulations 
affect persons making certain U.S.-related payments to FFIs and other 
foreign entities and payments by FFIs to other persons.

DATES: Effective date. These regulations are effective January 28, 
2013.
    Applicability dates. For dates of applicability, see Sec. Sec.  
1.1471-1(c); 1.1471-2(a)(1); 1.1471-2(a)(2)(i), (ii), (iii)(A); 1.1471-
2(a)(4)(ii); 1.1471-3(d)(1); 1.1471-3(d)(4)(i), (ii); (iv); 1.1471-
3(d)(6)(v); 1.1471-3(d)(11)(viii)(A); 1471-3(d)(12)(iii)(B); 1471-
3(e)(3)(ii); 1471-3(e)(4)(vii)(B); 1.1471-4(b)(1), (4); 1.1471-4(d)(7); 
1.1471-4(e)(2)(v); 1.1471-4(e)(3)(iv); 1.1471-5(f)(2)(iv); 1.1471-6(i); 
1.1472-1(b); 1.1473-1(a)(1)(ii) and 1.1473-1(a)(4)(vi); 1.1474-
1(d)(4)(iii)(C) and 1.1474-1(i); 1.1474-2(c); 1.1471-3(c); 1.1474-4(b); 
1.1474-5(c); 1.1474-6(f); 1.1474-7(c); 301.1474-1(e).

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

SUPPLEMENTARY INFORMATION:

Background

I. In General

    This document contains final amendments to the Income Tax 
Regulations (CFR parts 1 and 301) under sections 1471 through 1474 of 
the Code (commonly known as the Foreign Account Tax Compliance Act, or 
FATCA). On March 18, 2010, the Hiring Incentives to Restore Employment 
Act of 2010, Public Law 111-147 (the HIRE Act), added chapter 4 of 
Subtitle A (chapter 4), comprised of sections 1471 through 1474, to the 
Code. Chapter 4 generally requires U.S. withholding agents to withhold 
tax on certain payments to foreign financial institutions (FFIs) that 
do not agree to report certain information to the Internal Revenue 
Service (IRS) regarding their United States accounts (U.S. accounts), 
and on certain payments to certain nonfinancial foreign entities 
(NFFEs) that do not provide information on their substantial United 
States owners (substantial U.S. owners) to withholding agents. Since 
the enactment of chapter 4, the Department of the Treasury (Treasury 
Department) and the IRS have issued preliminary guidance on the 
implementation of chapter 4. See Notice 2010-60 (2010-37 I.R.B. 329), 
Notice 2011-34 (2011-19 I.R.B. 765), and Notice 2011-53 (2011-32 I.R.B. 
124) (collectively, the FATCA Notices). The FATCA Notices are available 
at IRS.gov.
    On February 15, 2012 (77 FR 9022), the Treasury Department and the 
IRS published a notice of proposed rulemaking (the proposed 
regulations) addressing chapter 4's due diligence, withholding, 
reporting, and associated requirements. On October 24, 2012, the 
Treasury Department and the IRS released Announcement 2012-42, which 
announced the intention to amend certain provisions of the proposed 
regulations in adopting the final regulations.
    The Treasury Department and the IRS received numerous comments in 
response to the proposed regulations, and a public hearing on the 
proposed regulations was held on May 15, 2012. The comments received in 
writing and at the public hearing were carefully considered in 
developing these final regulations.

II. Chapter 4 Policy in the Context of the U.S. Federal Income Tax Laws

    U.S. taxpayers' investments have become increasingly global in 
scope. FFIs now provide a significant proportion of the investment 
opportunities for, and act as intermediaries with respect to the 
investments of, U.S. taxpayers. Like U.S. financial institutions, FFIs 
are generally in the best position to identify and report with respect 
to their U.S. customers. Absent such reporting by FFIs, some U.S. 
taxpayers may attempt to evade U.S. tax by hiding money in offshore 
accounts. To prevent this abuse of the U.S. voluntary tax compliance 
system and address the use of offshore accounts to facilitate tax 
evasion, it is essential in today's global investment climate that 
reporting be available with respect to both the onshore and offshore 
accounts of U.S. taxpayers. This information reporting strengthens the 
integrity of the U.S. voluntary tax compliance system by placing U.S. 
taxpayers that have access to international investment opportunities on 
an equal footing with U.S. taxpayers that do not have such access or 
otherwise choose to invest within the United States.
    To this end, chapter 4 extends the scope of the U.S. information 
reporting regime to include FFIs that maintain U.S. accounts. Chapter 4 
also imposes increased disclosure obligations on certain NFFEs that 
present a high risk of U.S. tax avoidance. In addition, chapter 4 
provides for withholding on FFIs and NFFEs that do not comply with the 
reporting and other requirements of chapter 4. This withholding 
generally may be credited against the U.S. income tax liability of the 
beneficial owner of the payment to which the withholding is 
attributable, and generally may be refunded to the extent the 
withholding exceeds such liability. An FFI that does not comply with 
the requirements of section 1471(b), however, and that beneficially 
owns the payment from which tax is withheld under chapter 4, may not 
receive a credit or refund of such tax except to the extent required by 
a treaty obligation of the United States.

III. Statutory Provisions

    The following discussion briefly explains the statutory provisions 
of FATCA, which are implemented by these regulations. Section 1471(a) 
requires any withholding agent to withhold 30 percent of any 
withholdable payment to an FFI that does not meet the requirements of 
section 1471(b). A withholdable payment is defined in section 1473(1) 
to mean, subject to certain exceptions: (i) Any payment of interest, 
dividends, rents, salaries, wages, premiums, annuities, compensations, 
remunerations, emoluments, and other fixed or determinable annual or 
periodical gains, profits, and income (FDAP income), if such payment is 
from sources within the United States; and (ii) any gross proceeds from 
the sale or other disposition of any property of a type which can 
produce interest or dividends from sources within the United States.
    An FFI meets the requirements of section 1471(b) if it either 
enters into an agreement (an FFI agreement) with the IRS under section 
1471(b)(1) to perform certain obligations or meets requirements 
prescribed by the Treasury Department and the IRS to be deemed to 
comply with the requirements of section 1471(b). An FFI is defined as

[[Page 5875]]

any financial institution that is a foreign entity, other than a 
financial institution organized under the laws of a possession of the 
United States (generally referred to as a U.S. territory in this 
preamble). For this purpose, section 1471(d)(5) defines a financial 
institution as, except to the extent provided by the Secretary, any 
entity that: (i) Accepts deposits in the ordinary course of a banking 
or similar business; (ii) as a substantial portion of its business, 
holds financial assets for the account of others; or (iii) is engaged 
(or holding itself out as being engaged) primarily in the business of 
investing, reinvesting, or trading in securities, partnership 
interests, commodities, or any interest in such securities, partnership 
interests, or commodities.
    Section 1471(b)(1)(A) and (B) requires an FFI that enters into an 
FFI agreement (a participating FFI) to identify its U.S. accounts and 
comply with verification and due diligence procedures prescribed by the 
Secretary. A U.S. account is defined under section 1471(d)(1) as any 
financial account held by one or more specified United States persons, 
as defined in section 1473(3), (specified U.S. persons) or United 
States owned foreign entities (U.S. owned foreign entities), subject to 
certain exceptions. Section 1471(d)(2) defines a financial account to 
mean, except as otherwise provided by the Secretary, any depository 
account, any custodial account, and any equity or debt interest in an 
FFI, other than interests that are regularly traded on an established 
securities market. A U.S. owned foreign entity is defined in section 
1471(d)(3) as any foreign entity that has one or more substantial U.S. 
owners (as defined in section 1473(2)).
    A participating FFI is required under section 1471(b)(1)(C) and (E) 
to report certain information on an annual basis to the IRS with 
respect to each U.S. account and to comply with requests for additional 
information by the Secretary with respect to any U.S. account. The 
information that must be reported with respect to each U.S. account 
includes: (i) The name, address, and taxpayer identifying number (TIN) 
of each account holder who is a specified U.S. person (or, in the case 
of an account holder that is a U.S. owned foreign entity, the name, 
address, and TIN of each specified U.S. person that is a substantial 
U.S. owner of such entity); (ii) the account number; (iii) the account 
balance or value; and (iv) except to the extent provided by the 
Secretary, the gross receipts and gross withdrawals or payments from 
the account (determined for such period and in such manner as the 
Secretary may provide). In lieu of reporting account balance or value 
and reporting gross receipts and gross withdrawals or payments, a 
participating FFI may, subject to conditions provided by the Secretary, 
elect under section 1471(c)(2) to report the information required under 
sections 6041, 6042, 6045, and 6049 as if such institution were a U.S. 
person and each holder of such U.S. account that is a specified U.S. 
person or U.S. owned foreign entity were a natural person and citizen 
of the United States. If foreign law would prevent the FFI from 
reporting the required information absent a waiver from the account 
holder, and the account holder fails to provide a waiver within a 
reasonable period of time, the FFI is required under section 
1471(b)(1)(F) to close the account.
    Section 1471(b)(1)(D)(i) requires a participating FFI to withhold 
30 percent of any passthru payment to a recalcitrant account holder or 
to an FFI that does not meet the requirements of section 1471(b) 
(nonparticipating FFI). A passthru payment is defined in section 
1471(d)(7) as any withholdable payment or other payment to the extent 
attributable to a withholdable payment. Section 1471(d)(6) defines a 
recalcitrant account holder as any account holder that fails to provide 
the information required to determine whether the account is a U.S. 
account, or the information required to be reported by the FFI, or that 
fails to provide a waiver of a foreign law that would prevent 
reporting. A participating FFI may, subject to such requirements as the 
Secretary may provide, elect under section 1471(b)(3) not to withhold 
on passthru payments, and instead be subject to withholding on payments 
it receives, to the extent those payments are allocable to recalcitrant 
account holders or nonparticipating FFIs. Section 1471(b)(1)(D)(ii) 
requires a participating FFI that does not make such an election to 
withhold on passthru payments it makes to any participating FFI that 
makes such an election.
    Section 1471(e) provides that the requirements of the FFI agreement 
shall apply to the U.S. accounts of the participating FFI and, except 
as otherwise provided by the Secretary, to the U.S. accounts of each 
other FFI that is a member of the same expanded affiliated group, as 
defined in section 1471(e)(2).
    Section 1471(f) exempts from withholding under section 1471(a) 
certain payments beneficially owned by certain persons, including any 
foreign government, international organization, foreign central bank of 
issue, or any other class of persons identified by the Secretary as 
posing a low risk of tax evasion. Section 1472(a) requires a 
withholding agent to withhold 30 percent of any withholdable payment to 
an NFFE if the payment is beneficially owned by the NFFE or another 
NFFE, unless the requirements of section 1472(b) are met with respect 
to the beneficial owner of the payment. Section 1472(d) defines an NFFE 
as any foreign entity that is not a financial institution as defined in 
section 1471(d)(5).
    The requirements of section 1472(b) are met with respect to the 
beneficial owner of a payment if: (i) the beneficial owner or payee 
provides the withholding agent with either a certification that such 
beneficial owner does not have any substantial U.S. owners, or the 
name, address, and TIN of each substantial U.S. owner; (ii) the 
withholding agent does not know or have reason to know that any 
information provided by the beneficial owner or payee is incorrect; and 
(iii) the withholding agent reports the information provided to the 
Secretary.
    Section 1472(c)(1) provides that withholding under section 1472(a) 
does not apply to payments beneficially owned by certain classes of 
persons, including any class of persons identified by the Secretary. In 
addition, section 1472(c)(2) provides that withholding under section 
1472(a) does not apply to any class of payment identified by the 
Secretary for purposes of section 1472(c) as posing a low risk of tax 
evasion.
    Section 1474(a) provides that every person required to withhold and 
deduct any tax under chapter 4 is made liable for such tax and is 
indemnified against the claims and demands of any person for the amount 
of any payments made in accordance with the provisions of chapter 4. In 
general, the beneficial owner of a payment is entitled to a refund for 
any overpayment of tax actually due under other provisions of the Code. 
However, with respect to any tax properly deducted and withheld under 
section 1471 from a payment beneficially owned by an FFI, section 
1474(b)(2) provides that the FFI is not entitled to a credit or refund, 
except to the extent required by a treaty obligation of the United 
States (and, if a credit or refund is required by a treaty obligation 
of the United States, no interest shall be allowed or paid with respect 
to such credit or refund). In addition, section 1474(b)(3) provides 
that no credit or refund shall be allowed or paid with respect to any 
tax properly deducted and withheld under chapter 4 unless the 
beneficial owner of the payment provides the Secretary with such

[[Page 5876]]

information as the Secretary may require to determine whether such 
beneficial owner is a U.S. owned foreign entity and the identity of any 
substantial U.S. owners of such entity.
    Section 1474(c) provides that information provided under chapter 4 
is confidential under rules similar to section 3406(f), except that the 
identity of an FFI that meets the requirements of section 1471(b) is 
not treated as return information for purposes of section 6103.
    Section 1474(d) provides that the Secretary shall provide for the 
coordination of chapter 4 with other withholding provisions under the 
Code, including providing for the proper crediting of amounts deducted 
and withheld under chapter 4 against amounts required to be deducted 
and withheld under other provisions.
    Section 1474(f) provides that the Secretary shall prescribe such 
regulations or other guidance as may be necessary or appropriate to 
carry out the purposes of, and prevent the avoidance of, chapter 4.

IV. Balanced and Integrated Approach to Implementing Chapter 4

    Chapter 4 grants the Secretary of the Treasury broad regulatory 
authority to prescribe rules and procedures relating to the diligence, 
reporting, and withholding obligations of the statute. These final 
regulations exercise this authority by providing specific operational 
guidelines for implementing FATCA in a manner consistent with its 
principal policy objectives. Recognizing that there are costs 
associated with the implementation of any new withholding and reporting 
regime, the Treasury Department and the IRS solicited comments and met 
extensively with stakeholders to develop an implementation approach 
that achieves an appropriate balance between fulfilling the important 
policy objectives of chapter 4 and minimizing the burdens imposed on 
stakeholders. This engagement resulted in hundreds of constructive 
comments from and numerous productive meetings with stakeholders. While 
the comments covered a broad range of issues relating to the 
implementation of FATCA, the vast majority of commenters expressed 
concerns regarding the costs and burdens associated with implementing 
FATCA and the legal impediments to compliance in a number of 
jurisdictions. Comments also expressed concerns regarding the 
procedural and systems aspects of registering and reporting.
    The Treasury Department and the IRS carefully considered these 
comments and established three avenues for addressing the principal 
concerns regarding burdens, legal impediments, and technical 
implementation. The first avenue was to adopt a risk-based approach to 
implementing the statute that effectively addresses policy 
considerations, eliminates unnecessary burdens, and, to the extent 
possible, builds on existing practices and obligations. The second 
avenue was to collaborate with foreign governments to develop an 
alternative intergovernmental approach to implementing chapter 4 that 
removes legal impediments, allows for alignment and coordination with 
local law reporting practices, and achieves further burden reductions. 
The third avenue was to develop administrative approaches to simplify 
the process for registering and entering into an agreement with the IRS 
in order to minimize operational costs associated with collecting and 
reporting FATCA information.

A. Targeted Regulations

    These final regulations address potential administrative burdens 
associated with FATCA compliance by adopting a risk-based and targeted 
approach to implement the statute with respect to scope, diligence, and 
timing. In particular, with respect to scope, consistent with the 
objectives of the statute, the regulations limit the institutions, 
obligations, and accounts subject to FATCA to more specifically target 
concerns and address practical considerations. For example, the final 
regulations refine the scope of FATCA in the following ways:
     Expansion of Grandfather Rule for Certain Obligations. To 
promote the orderly implementation of FATCA, the final regulations 
exempt from chapter 4 withholding all obligations outstanding on 
January 1, 2014, and any associated collateral. In addition, because 
evolving areas of the law may create chapter 4 withholding obligations 
in the future and create uncertainty and risk in the meantime, the 
final regulations address obligations (and associated collateral) that 
may give rise to withholdable payments through future regulations under 
section 871(m) (relating to dividend equivalent payments) or to foreign 
passthru payments under the chapter 4 foreign passthru payment rules. 
Such obligations are grandfathered if the obligations are outstanding 
at any point prior to six months after the implementing regulations are 
published.
     Scope of Covered Financial Institutions. In response to 
comments, the final regulations treat passive entities that are not 
professionally managed as NFFEs rather than as FFIs. The final 
regulations also provide appropriate exemptions for financial 
institutions and certain passive NFFEs that are part of a nonfinancial 
group of companies and that support the operations of the group.
     Expansion of Deemed Compliant and Other Exempt Categories. 
The final regulations expand the categories of FFIs that are deemed to 
comply with FATCA without the need to enter into an agreement with the 
IRS in order to focus the application of FATCA on higher-risk financial 
institutions that provide services to the global investment community. 
In addition, the final regulations expand the scope of retirement funds 
that are considered exempt beneficial owners the income of which is not 
subject to chapter 4 withholding.
    With respect to diligence, the final regulations reduce the 
administrative burdens associated with identifying U.S. accounts by 
calibrating due diligence requirements based on the value and risk 
profile of the account, and by permitting FFIs in many cases to rely on 
information they already collect. For example, the final regulations 
reduce the burdens associated with identifying U.S. accounts in the 
following ways:
     Accounts exempt from review. The final regulations exempt 
from review entirely all preexisting accounts held by individuals with 
a balance or value of $50,000 or less. This threshold is raised to 
$250,000 for preexisting accounts held by entities and for preexisting 
accounts that are cash value insurance and annuity contracts. In 
addition, the final regulations exempt insurance contracts with a 
balance or value of $50,000 or less from treatment as financial 
accounts.
     Reduced diligence and documentation rules for lower value 
preexisting accounts. In the case of preexisting accounts with a 
balance or value of $1,000,000 or less, the final regulations permit a 
participating FFI to determine whether any of its accounts held by 
individuals are U.S. accounts based solely on a search of 
electronically searchable account information for certain U.S. indicia. 
In addition, for such accounts held by passive NFFEs, the final 
regulations allow a withholding agent to rely on its review conducted 
for anti-money laundering due diligence purposes to identify any 
substantial U.S. owners of the payee in lieu of obtaining a 
certification.
     Reliance on self-certification. In the case of accounts 
held by entities, the final regulations expand the ability of FFIs to 
rely on a self-certification from

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an account holder as to its chapter 4 status.
    Finally, with respect to timing, the final regulations allow 
reasonable timeframes to review existing accounts and implement FATCA's 
obligations in stages to minimize burdens and costs consistent with 
achieving the statute's compliance objectives. For example:
     Time allowed for review of pre-existing accounts. The 
final regulations treat all accounts maintained by an FFI prior to 
January 1, 2014, as preexisting accounts. In addition, the final 
regulations allow participating FFIs and withholding agents until 
December 31, 2015, to document account holders and payees that are not 
prima facie FFIs.
     Phased implementation of reporting. The final regulations 
modify the due date for the first information report by requiring 
participating FFIs to file the first information reports with respect 
to the 2013 and 2014 calendar years not later than March 31, 2015.
     Phased implementation of withholding on passthru payments 
and gross proceeds. The final regulations exempt from withholding 
foreign passthru payments and gross proceeds from sales or dispositions 
of property occurring before January 1, 2017.

B. Intergovernmental Agreements

1. In General
    In many cases, foreign law would prevent an FFI from reporting 
directly to the IRS the information required by the FATCA statutory 
provisions and these regulations, thus potentially exposing the FFI to 
withholding. Such an outcome would be inconsistent with FATCA's 
objective to address offshore tax evasion through increased information 
reporting. To overcome these legal impediments, the Treasury Department 
has collaborated with foreign governments to develop two alternative 
model intergovernmental agreements that facilitate the effective and 
efficient implementation of FATCA in a manner that removes domestic 
legal impediments to compliance, fulfills FATCA's policy objectives, 
and further reduces burdens on FFIs located in partner jurisdictions.
    The first model intergovernmental agreement was published on July 
26, 2012. A partner jurisdiction signing an agreement with the United 
States based on the first model (Model 1 IGA) agrees to adopt rules to 
identify and report information about U.S. accounts that meet the 
standards set out in the Model 1 IGA. FFIs covered by a Model 1 IGA 
that are not otherwise excepted or exempt pursuant to the agreement 
must identify U.S. accounts pursuant to due diligence rules adopted by 
the partner jurisdiction and report specified information about the 
U.S. accounts to the partner jurisdiction. The partner jurisdiction 
then exchanges this information with the IRS on an automatic basis. 
These standards ensure that the IRS will receive the same quality and 
quantity of information about U.S. accounts from FFIs covered by a 
Model 1 IGA as it receives from FFIs applying these final regulations.
    A second model intergovernmental agreement was published on 
November 14, 2012. A partner jurisdiction signing an agreement with the 
United States based on the second model (Model 2 IGA) agrees to direct 
and enable all FFIs that are located in the jurisdiction, and that are 
not otherwise excepted or exempt pursuant to the Model 2 IGA, to 
register with the IRS and report specified information about U.S. 
accounts directly to the IRS in a manner consistent with chapter 4 and 
these final regulations, except as expressly modified by the Model 2 
IGA. In the case of certain recalcitrant account holders, the 
information reported to the IRS by FFIs covered by a Model 2 IGA is 
supplemented by government-to-government exchange of information.
    Both Model 1 IGAs and Model 2 IGAs (together, IGAs) contemplate 
that the partner jurisdiction will require all financial institutions 
that are located in the jurisdiction, and that are not otherwise 
excepted or exempt pursuant to the agreement, to identify and report 
information about U.S. accounts. In consideration of the full 
cooperation by the partner jurisdiction, the model agreements 
contemplate a number of simplifications and burden reductions 
associated with the application of FATCA in the partner jurisdiction. 
The Treasury Department and the IRS believe that IGAs represent 
efficient and effective ways of implementing the requirements of 
chapter 4 and will continue to conclude bilateral agreements based on 
the two models with interested jurisdictions. In addition, the Treasury 
Department and the IRS continue to receive comments strongly supporting 
the approach to FATCA implementation embodied in the IGAs. The Treasury 
Department and the IRS remain committed to working cooperatively with 
foreign jurisdictions on multilateral efforts to improve transparency 
and information exchange on a global basis.
2. Interaction of IGAs With the Final Regulations
    FFIs covered by a Model 1 IGA, and that are in compliance with 
local laws implemented to identify and report U.S. accounts in 
accordance with the terms of the Model 1 IGA, will be treated as 
satisfying the due diligence and reporting requirements of chapter 4. 
Accordingly, consistent with the terms of the Model 1 IGA, these FFIs 
do not need to apply the final regulations for purposes of complying 
with and avoiding withholding under FATCA. In certain cases prescribed 
in the Model 1 IGA, the laws of the partner jurisdiction may allow the 
resident FFI to elect to apply provisions of these regulations instead 
of the rules otherwise prescribed in the Model 1 IGA.
    FFIs covered by a Model 2 IGA with the United States will be 
required to implement FATCA in the manner prescribed by these 
regulations except to the extent expressly modified by the Model 2 IGA. 
The final regulations accommodate such variations.

C. Streamlined Registration and Technical Implementation

    FFIs registering with the IRS will be able to do so through a 
secure online web portal, the FATCA Registration Portal (Portal), from 
anywhere in the world. The Portal is designed to accomplish an entirely 
paperless registration process. Registering FFIs will be able to use 
the Portal to register their chapter 4 status (such as participating 
FFI or reporting Model 1 FFI (both as defined in the final 
regulations)), manage their registration information, and, as 
appropriate, agree to the terms of or make the representations required 
for their status. The Portal will also facilitate electronic 
communication between the IRS and FFIs and other registrants. 
Registered FFIs designated as leads of an expanded affiliated group 
will be able to use the Portal to manage the registration status of 
group members. The Portal will also be used by registering FFIs that 
are already Qualified Intermediaries (QIs) to renew their QI status. An 
FFI's submission and maintenance of registration information through 
the Portal will maximize processing efficiencies, minimize errors, and 
ensure expedient issuance of a Global Intermediary Identification 
Number (``GIIN''). An FFI will use its GIIN to establish its chapter 4 
status for withholding purposes and to identify the institution for 
reporting purposes under the final regulations. The IRS currently 
contemplates that the GIIN may also be used by reporting Model 1 FFIs 
to satisfy reporting requirements under local law and is discussing 
this possibility with its Model 1 IGA partners. With regard to 
reporting, the IRS is also discussing with partner jurisdictions the 
possibility of adopting

[[Page 5878]]

a single format for reporting FATCA information, whether that 
information is reported directly to the IRS or to the tax 
administration in a Model 1 IGA jurisdiction.
    The IRS also anticipates that the certifications of compliance 
required to be made by responsible officers pursuant to Sec. Sec.  
1.1471-4(c)(7) and 1.1471-4(f)(3) will be made electronically through 
the Portal, resulting in similar efficiencies.

Summary of Comments and Explanation of Revisions

I. In General

    The Treasury Department and the IRS received a number of general 
comments requesting improvements to the readability of the proposed 
regulations. In response, the Treasury Department and the IRS made 
substantial changes in the final regulations to simplify and clarify 
the chapter 4 rules. In addition, the Treasury Department and the IRS 
received numerous specific comments regarding the proposed regulations 
and made numerous changes to the final regulations in response to those 
comments.
    The following discussion addresses the significant changes in the 
final regulations from the proposed regulations. To facilitate this 
discussion, the defined terms from Sec.  1.1471-1(b) are used 
throughout.

II. Comments and Changes to Sec.  1.1471-1--Scope of Chapter 4 and 
Definitions

    The chapter 4 definitions have been revised to reflect the IGAs and 
other changes adopted in the final regulations. Revisions of the 
definitions are discussed as relevant in the succeeding sections of 
this preamble.

III. Comments and Changes to Sec.  1.1471-2--Requirement To Deduct and 
Withhold Tax on Withholdable Payments to Certain FFIs

A. Grandfathered Obligations

    Comments requested modifications to the scope of grandfathered 
obligations to facilitate market transition and allow time for adapting 
master agreements and collateral arrangements in light of the IGAs, the 
future issuance of guidance under section 871(m), and other systems 
developments. In response, the final regulations provide that 
grandfathered obligations consist of: (1) Any obligation outstanding on 
January 1, 2014; (2) any obligation that produces withholdable payments 
solely because the obligation is treated as giving rise to a dividend 
equivalent pursuant to section 871(m) and the regulations thereunder 
and that is executed on or before the date that is six months after the 
date on which obligations of its type are first treated as giving rise 
to dividend equivalents; and (3) any agreement requiring a secured 
party to make payments with respect to collateral securing one or more 
grandfathered obligations (even if the collateral is not itself a 
grandfathered obligation). If collateral (or a pool of collateral) 
secures both grandfathered obligations and obligations that are not 
grandfathered, the collateral posted to secure the grandfathered 
obligations must be determined by allocating (pro rata by value) the 
collateral (or, in the case of a pool of collateral, each item 
comprising the pool of collateral) to all outstanding obligations 
secured by the collateral (or pool of collateral).
    In addition, the final regulations provide that an obligation will 
not give rise to a foreign passthru payment if it is executed on or 
before the date that is six months after the date on which final 
regulations defining the term foreign passthru payment are filed with 
the Federal Register. Comments also requested clarification of the 
outstanding date of a debt instrument that is reopened in a qualified 
reopening under Sec.  1.1275-2(k). For debt obligations, the final 
regulations determine the date the obligation is outstanding based on 
the issue date of the debt. Thus, whether debt issued in a qualified 
reopening will be treated as a grandfathered obligation depends on the 
issue date of the original debt, which is the issue date of the debt 
issued in the qualified reopening.
    The final regulations also provide that the date a non-debt 
obligation is outstanding is the date a legally binding agreement is 
executed. Thus, a line of credit or a revolving credit facility for a 
fixed term may qualify as an obligation provided that the agreement as 
of its issue date fixes the material terms (including a stated maturity 
date) under which the credit will be provided.
    In response to comments regarding insurance contracts, the final 
regulations provide that: (1) a life insurance contract payable no 
later than upon the death of the insured individual(s) is an obligation 
that may qualify as a grandfathered obligation; and (2) premiums paid 
for an insurance contract or annuity contract that is treated as a 
grandfathered obligation are treated as payments made under a 
grandfathered obligation.
    Finally, comments requested provisions to simplify a withholding 
agent's determination of whether an obligation is grandfathered. 
Accordingly, the final regulations provide that: (1) A withholding 
agent, other than the issuer of the obligation (or an agent of the 
issuer) may, absent actual knowledge, rely on a written statement by 
the issuer of the obligation to determine whether such obligation meets 
the requirements for grandfathered treatment; (2) a withholding agent 
is required to treat a modification as material only if the withholding 
agent knows or has reason to know that such modification was material; 
and (3) a withholding agent, other than the issuer of the obligation 
(or an agent of the issuer), absent actual knowledge, will have reason 
to know of a material modification if it receives a disclosure thereof 
from the issuer of the obligation (or from such issuer's agent).

B. Other Changes to the Withholding Provisions

    Comments requested that the withholding provisions under chapter 4 
conform with certain withholding provisions of chapter 3. In addition, 
comments requested that the election to be withheld upon under section 
1471(b)(3) and provided in the proposed regulations be available on an 
account-by-account basis. In response to these comments, the final 
regulations: (1) Clarify the exception to withholding when a 
withholding agent lacks control, custody, or knowledge of a payment; 
(2) treat a payment as a withholdable payment in the absence of 
knowledge of its source or character, or allow for up to a one-year 
escrow of 30 percent of the payment pending a determination of the 
relevant facts; and (3) permit the election to be withheld upon 
pursuant to Sec.  1.1471-2(a)(2)(iii) to be made on an account-by-
account basis, provided other applicable requirements are satisfied.

IV. Comments and Changes to Sec.  1.1471-3--Identification of Payee

A. Documentation Alternatives

1. In General
    Comments requested that the final regulations generally permit a 
withholding agent to rely upon a withholding certificate to establish 
the chapter 4 status of a payee without obtaining additional 
documentary evidence, unless such documentary evidence is required 
under chapter 3. This comment was adopted. The final regulations 
further expand the types of documentary evidence upon which a 
withholding agent may rely with respect to offshore obligations, 
including government Web sites and reports from government agencies. 
For preexisting obligations, the final regulations permit a withholding 
agent to rely on information previously recorded in the withholding 
agent's files, in addition to

[[Page 5879]]

standardized industry codes, in determining the chapter 4 status of the 
payee. For these purposes, a standardized industry code may be any 
coding system employed by the withholding agent.
2. Written Statements
    Comments requested that the final regulations permit reliance on 
written statements without additional documentation for offshore 
obligations that do not generate payments of U.S. source FDAP income 
(such as a depository account maintained outside of the United States 
by an FFI) and enumerate the elements they must contain. This comment 
was adopted. A written statement may also be relied upon with respect 
to an offshore obligation that generates payments of U.S. source FDAP 
income if it is accompanied by documentary evidence establishing the 
foreign status of the person named on the written statement.
    Comments noted that signed documentation outside of the United 
States generally does not require signature under penalties of perjury, 
and that such a requirement would depart from current AML due diligence 
procedures. The final regulations remove the penalties of perjury 
requirement for written statements used as documentation for payments 
made outside of the United States on offshore obligations, other than 
for payments of U.S. source FDAP income.
3. Substitute and Non-IRS Forms
    Comments requested the ability to use substitute forms, including 
forms prepared or filled out in a foreign language. In response, the 
final regulations provide that substitute forms may be both prepared in 
and filled out in a foreign language, provided the withholding agent 
furnishes the IRS with a translated version upon request. Such 
substitute forms must contain the same certifications as the official 
IRS form to the extent relevant. For this purpose, a substitute form 
for individuals is acceptable, provided that the form contains the 
required information, including the individual's permanent residence 
address, all relevant tax identification numbers, and, if not signed 
under penalties of perjury, the withholding agent has obtained 
applicable documentary evidence that supports the person's claim of 
foreign status. Qualifying non-IRS forms may be used within the United 
States as well as for offshore obligations, and also may be used for 
purposes of chapter 3 to the extent provided in Sec.  1.1441-
1(e)(4)(vi).
4. Reliance on Pre-FATCA Form W-8
    In response to comments that FFIs would have difficulty obtaining 
new documentation on all preexisting account holders in a compressed 
time frame, the final regulations provide that a withholding agent may 
rely upon a pre-FATCA Form W-8 in lieu of obtaining an updated version 
of the withholding certificate in certain circumstances.
5. Curing Inconsequential Errors
    Comments requested that a minor error in a withholding certificate 
not invalidate the certificate if the error can be cured with 
supplemental information already on file for the payee. In response, 
the final regulations provide that a withholding agent may treat a 
withholding certificate as valid, notwithstanding an inconsequential 
error, if it otherwise has sufficient documentation to cure the error 
that does not contradict the information on the withholding 
certificate. A failure to make a required certification, or to provide 
a country of residence (or country under which treaty benefits are 
sought), is not an inconsequential error.

B. Continuing Validity of Documentation

    Comments requested relief from the general requirement to refresh 
documentation every three years. In response, the final regulations 
permit documentation to remain valid indefinitely, subject to a change 
in circumstances, if the chapter 4 status claimed is a specified low-
risk category. The Treasury Department and the IRS are considering 
extending the final regulations' validity rule to chapter 3 in 
appropriate circumstances (for example, when the payee does not make a 
claim that withholding under chapter 3 is reduced pursuant to a 
treaty).

C. Owner-Documented FFIs

    In response to comments requesting reduced documentation 
requirements for the owner-documented FFI provisions, the final 
regulations make several modifications that also take into account the 
policy considerations presented by owner-documented FFIs. These 
modifications include: (1) permitting transitional reliance, subject to 
certain requirements, on documentation collected for AML due diligence 
purposes for payments made prior to January 1, 2017, on preexisting 
obligations; (2) allowing such entities to issue debt interests to an 
expanded group of holders, provided such debt holders are reported in 
the same manner as equity holders; (3) simplifying the withholding 
statement provided for an owner-documented FFI; and (4) providing for 
indefinite validity for withholding certificates and withholding 
statements submitted with respect to obligations having an aggregate 
value equal to or less than $1,000,000.

D. ``Eyeball Test'' and Effectively Connected Income Presumption

    Comments requested that chapter 4 incorporate the so-called 
``eyeball test'' under chapters 3 and 61 that treats payments inside 
the United States to certain entities that have ``incorporated,'' 
``corporation,'' or an indication of status as a financial institution 
in their names as made to U.S. exempt recipients. Moreover, comments 
noted that withholding agents often already obtain documentary evidence 
for these entities to satisfy AML due diligence requirements. In 
response to these comments, the final regulations permit a withholding 
agent to rely upon documentary evidence obtained with respect to the 
payee, in lieu of a Form W-9, in order to establish the entity's status 
as a U.S. person and rely on the ``eyeball test'' to determine (to the 
extent applicable) the payee's status as other than a specified U.S. 
person under chapter 4.
    Comments also requested that the final regulations incorporate the 
chapter 3 rules under which withholding agents are permitted to presume 
that payments made to U.S. branches of certain banks and insurance 
companies are payments of income that is effectively connected with the 
conduct of a trade or business within the United States. In response, 
the regulations permit a withholding agent to presume that a payment 
made to a U.S. branch of certain banks and insurance companies is a 
payment of income that is effectively connected with a trade or 
business within the United States (and thus not a withholdable payment) 
if the withholding agent obtains a GIIN that enables the withholding 
agent to confirm that the FFI is a participating FFI or registered 
deemed-compliant FFI, as well as an EIN for the U.S. branch that 
enables the withholding agent to properly report the payment. 
Conforming changes are anticipated to be made to the presumption rule 
in chapter 3 to provide consistency with the rule set forth in these 
regulations.

E. Rules for Offshore Obligations of Funds and New Accounts of 
Preexisting Customers

    Comments requested additional clarity regarding when an interest in 
an investment fund should be treated as an offshore obligation. 
Comments also

[[Page 5880]]

stated that, in general, an investment fund's office is not separate 
from that of its manager or administrator, and shares issued by 
investment funds are not ``maintained and executed'' at a particular 
office. In response to these comments, the definition of an offshore 
obligation has been amended to clarify that an offshore obligation also 
includes an equity interest in a foreign entity if the owner of the 
interest purchased the interest outside the United States either 
directly from the foreign entity or from another entity located outside 
the United States.
    Comments also requested that a new account of a preexisting 
customer be treated as a preexisting obligation. Comments stated that 
in such cases, withholding agents and FFIs generally do not get 
additional documentation from the customer because they are not 
required to do so for AML due diligence purposes. In response to these 
comments, the final regulations permit a new account of a customer that 
has a preexisting obligation to be treated as a preexisting obligation, 
provided that the withholding agent or FFI maintaining the account also 
treats the new obligation and the prior obligation as one obligation 
for purposes of applying AML due diligence, aggregating balances, and 
applying the standards of knowledge for purposes of chapter 4. The 
final regulations also permit this treatment to apply on a group basis 
for expanded affiliated groups and sponsored FFI groups.

F. Standards of Knowledge

    Under the final regulations, the standards of knowledge provisions 
have been modified to allow withholding agents to rely on a claim of 
status as a participating or registered-deemed compliant FFI based on 
checking the payee's GIIN against the published IRS FFI list. Prior to 
January 1, 2015, a withholding agent is not required to confirm GIINs 
regarding an FFI's claim of status as a reporting Model 1 FFI. However, 
an FFI will have reason to know that such claim is unreliable if the 
withholding agent does not have a permanent residence address for the 
FFI (or address of the relevant branch) in the relevant country that 
has in effect a Model 1 IGA.
    The final regulations further provide: (1) Limits, generally 
conformed with the chapter 3 limits, on a withholding agent's reason to 
know regarding a payee's claim of status as a foreign person; (2) 
limits on the review that must be conducted with respect to particular 
types of documentation, and in particular on the scope of review with 
respect to preexisting obligations; and (3) further guidance regarding 
when a payee has made a reasonable explanation regarding the presence 
of U.S. indicia. The Treasury Department and the IRS intend to issue 
guidance under chapter 3 that is consistent with the rules in these 
regulations regarding such reasonable explanations.

G. Reliance on Presumptions in Lieu of Documentation

    Under the final regulations, a withholding agent may choose to rely 
on presumption rules in lieu of accepting and reviewing documentation 
of payees. This accommodates withholding agents that are unsure whether 
the documentation they have obtained is reliable or that do not wish to 
accept the responsibility associated with the acceptance of the 
documentation.

H. Consolidation and Sharing of Documentation, and Third-Party Reliance

    Comments requested reduction of duplicative documentation 
requirements, facilitation of documentation sharing, and more detailed 
rules regarding reliance on agents or third-party service providers. In 
response, the final regulations adopt the following provisions.
1. Multiple Accounts of the Same Payee
    The final regulations provide rules (consistent with chapter 3 in 
Sec.  1.1441-1(e)(4)(ix)(A)) for a withholding agent to rely on 
documentation for multiple accounts of the same payee if the 
withholding agent aggregates the balance or value of those accounts 
(when relevant) and shares information across those accounts for 
purposes of determining when the withholding agent has actual knowledge 
or reason to know that the chapter 4 status claimed is inaccurate.
2. Mergers or Bulk Acquisitions
    The final regulations provide a temporary six month period during 
which withholding agents that acquire accounts in a merger or bulk 
acquisition for value may rely, in the absence of contrary knowledge or 
a change in circumstances, upon the chapter 4 statuses assigned by a 
predecessor that is a U.S. withholding agent, a participating FFI, or a 
reporting Model 1 FFI that has completed all due diligence required 
under its agreement or pursuant to the applicable Model 1 IGA, provided 
that the predecessor is not a member of the withholding agent's 
expanded affiliated group prior to a merger or bulk acquisition, or 
after a bulk acquisition. At the end of the temporary period, the 
acquirer may continue to so rely only if the documentation it has, 
including the acquired documentation, supports the chapter 4 statuses 
claimed.
3. Common Agents
    The final regulations provide rules (consistent with Sec.  1.1441-
1(e)(4)(ix)(A)(4) and (B)) with respect to sharing and relying upon 
documentation that has been provided by a common agent for multiple 
parties, including a fund advisor or principal underwriter that 
collects documentation for a family of mutual funds. This reliance is 
made contingent upon the agent also sharing any knowledge regarding 
inaccuracy or unreliability of the chapter 4 status claims across all 
the withholding agents with which the agent shares the documentation.
4. Third-Party Data Providers
    The final regulations provide rules permitting a withholding agent 
to rely upon documentation collected with respect to an entity by a 
third-party data provider, subject to conditions including: (1) The 
third-party data provider is in the business of collecting information 
regarding entities and providing business reports or credit reports to 
unrelated customers and must have reviewed all information it has for 
the entity and verified that such additional information does not 
conflict with the chapter 4 status claimed by the entity; (2) the 
third-party data provider collects documentation sufficient to meet the 
applicable documentation requirements; and (3) the third-party data 
provider provides notice of changes in circumstances. This provision 
permits withholding agents to rely upon documentation collected by a 
third-party data provider, but does not relieve the withholding agent 
of the obligation to determine whether that documentation is reliable 
based on the information contained in the documentation and other 
information in the withholding agent's files.
5. Introducing Brokers
    Comments requested that for purposes of chapter 4 a withholding 
agent be permitted to rely upon certifications regarding a payee's 
chapter 4 status provided by an introducing broker that is a QI or 
participating FFI (in addition to introducing brokers who are U.S. 
persons, as provided under the proposed regulations). In response to 
these comments, the final regulations permit reliance upon a 
certification provided by a participating FFI (which includes a QI that 
is a financial institution) if the participating FFI is

[[Page 5881]]

acting as an agent of the payee with respect to an obligation and 
receiving all payments made by the withholding agent with respect to 
that obligation on behalf of the payee, provided that certain 
requirements are met and the withholding agent does not know or have 
reason to know that the broker has not obtained valid documentation as 
represented or the information contained in the certification is 
otherwise inaccurate.
6. Transfer Agents
    Comments requested that a transfer agent's obligations as a 
withholding agent be limited to the obligations of the principal on 
behalf of which the transfer agent acts in order to avoid duplicative 
efforts or conflicts between the standards applicable to the transfer 
agent and the principal. In response, the final regulations provide 
that merely acting as an agent with respect to a financial account 
belonging to the principal will not cause the agent to also have a 
financial account for that customer unless the agent would be treated 
as having the financial account independent of its actions as an agent. 
An agent that makes a payment on behalf of a principal is a withholding 
agent with respect to the payment and, accordingly (as under chapter 3) 
has a responsibility to determine the chapter 4 status of the payee and 
withhold, if required. However, because the obligation belongs to the 
principal, the level of due diligence that must be completed with 
respect to the obligation is determined by the obligation's status with 
respect to the principal. In order to minimize any duplicative 
responsibilities, the final regulations permit the agent to rely 
(absent contrary knowledge or reason to know) upon documentation 
collected by the principal or a certification by the principal that 
appropriate documentation has been collected.

I. Electronic Transmission of Documentation

    Comments requested that a withholding agent be permitted to rely 
upon withholding certificates that are signed with a handwritten 
signature, scanned into an electronic device, and then emailed to the 
withholding agent. The final regulations adopt the rule of the proposed 
regulations, which permits the electronic transmission of a withholding 
certificate that has been signed with a handwritten signature and then 
scanned and emailed to the withholding agent if the requirements of 
Sec.  1.1441-1(e)(4)(iv) are met. Further, the Treasury Department and 
the IRS continue to consider whether to retain the confirmation 
requirements in chapters 3 and 4. In addition, in response to comments, 
the final regulations do not require that documentary evidence that has 
been transmitted electronically be a certified or notarized copy.

 J. Other Changes Made to Payee Identification Rules

    Consistent with a risk-based approach to compliance under chapter 
4, the final regulations adopt in whole or part several modifications 
requested by comments, including modifications to:
    (1) Permit documentary evidence that does not contain an address, 
provided that the documentary evidence contains the person's country of 
residence or citizenship, and the withholding agent has obtained a 
permanent residence address for the person.
    (2) Include a director, any foreign equivalent of an officer in the 
United States, and any other person granted written authority as a 
person authorized to sign a withholding certificate or written 
statement.
    (3) Permit, in lieu of retention of copies of documentation, the 
retention of notations regarding documentation reviewed and (for 
obligations that are not preexisting obligations) any U.S. indicia 
identified, in the course of AML due diligence.
    (4) Treat registered deemed-compliant FFIs as payees under the same 
circumstances in which participating FFIs are treated as payees.
    (5) Treat all excepted NFFEs in the same manner, and provide that 
any excepted NFFE is the payee, unless it is acting as an agent or 
intermediary (other than a QI accepting primary withholding 
responsibility).
    (6) Permit the submission of a withholding certificate within 30 
days of payment (rather than the 15 days permitted in the proposed 
regulations) without an affidavit of accuracy as of the time of 
payment.
    (7) Provide a definition for the term standing instructions to pay 
amounts to include current payment instructions that will repeat 
without further instructions being provided by the account holder.
    (8) Clarify that a withholding statement submitted by a 
participating FFI or registered deemed-compliant FFI can include pooled 
information with respect to each class of payees unless payee-specific 
information is provided for purposes of chapter 3, in which case a 
chapter 4 status must be provided for each payee that is identified on 
the withholding statement.

V. Comments and Changes to Sec.  1.1471-4--FFI Agreement

A. In General

1. FFI Agreement
    The Treasury Department and the IRS received comments requesting 
additional guidance on the requirements of the FFI agreement. In 
response to these comments, the final regulations set forth all of the 
substantive requirements applicable to an FFI under the FFI agreement. 
The final regulations provide the requirements for verifying compliance 
with the FFI agreement, define an event of default and procedures for 
remediating of an event of default, allow participating FFIs to file 
collective refund claims on behalf of certain account holders and 
payees for amounts overwithheld, and provide procedural requirements if 
a participating FFI is legally prohibited from reporting or withholding 
as required under the FFI agreement. In addition, the final regulations 
do not restrict a participating FFI's ability to terminate an FFI 
agreement. This responds to comments concerning future withholding 
requirements for foreign passthru payments, and allows an FFI the 
flexibility to reconsider its status as further guidance is 
promulgated.
    The Treasury Department and the IRS expect to publish a revenue 
procedure setting out the terms of an FFI agreement, consistent with 
these final regulations, coordinating an FFI's obligations under the 
FFI agreement with chapter 3 obligations and with the provisions of any 
applicable IGA, and including administrative provisions such as those 
relating to termination, renewal, and modification of the agreement.
2. Effective Date of the FFI Agreement
    Many comments were received regarding the effective date provided 
in the proposed regulations for implementing the chapter 4 rules. 
Comments requested a delay of the effective date of the FFI agreement 
to allow FFIs sufficient time to modify systems and to implement the 
required account opening procedures. In response to comments, the final 
regulations delay the effective date of the FFI agreement until 
December 31, 2013, for all participating FFIs that receive a GIIN prior 
to January 1, 2014. This change aligns the effective date of, and due 
diligence periods under, the FFI agreement with the timelines provided 
under the IGAs.

[[Page 5882]]

3. U.S. Branches of Participating FFIs
    Comments requested further clarifications on the application of the 
chapter 4 rules to U.S. branches of participating FFIs. In response to 
these comments, the final regulations provide comprehensive rules for 
U.S. branches of participating FFIs. A U.S. branch of a participating 
FFI that is treated as a U.S. person, as provided in Sec.  1.1441-
1(b)(2)(iv), is subject to special requirements to fulfill the 
withholding, due diligence, and reporting requirements of a U.S. 
financial institution to the extent provided under chapters 4 and 61 
and section 3406(a). Additionally, such a U.S. branch is required to 
file a separate Form 1042 to report amounts subject to reporting under 
chapter 4 and any taxes withheld.
    A U.S. branch of a participating FFI that is not treated as a U.S. 
person is required to fulfill the general requirements set forth in 
Sec.  1.1471-4 for withholding, due diligence, and reporting.

B. Withholding by FFIs

    The final regulations provide that an FFI is not required to 
withhold on foreign passthru payments until the later of January 1, 
2017, or six months after the date of publication in the Federal 
Register of final regulations defining the term foreign passthru 
payments.
    Comments requested more comprehensive rules concerning the 
withholding requirements of a participating FFI under the FFI 
agreement. In response to these comments, the final regulations provide 
that a participating FFI may apply the exceptions from withholding 
provided in Sec.  1.1471-2, including the exception for grandfathered 
obligations and the transitional withholding requirements for payments 
made to prima facie FFIs. In addition, the proposed regulations did not 
provide detail on the coordination of withholding under sections 
1471(a) and 1472 with withholding under section 1471(b). The final 
regulations provide that a participating FFI that satisfies its 
obligations under Sec.  1.1471-4(b) to withhold on withholdable 
payments made to payees that are nonparticipating FFIs and recalcitrant 
account holders will be deemed to satisfy its obligations under 
sections 1471(a) and 1472 with respect to such payees and account 
holders.

C. Due Diligence

    The final regulations adopt numerous comments intended to assist 
participating FFIs in complying with their obligations to perform due 
diligence to identify and document account holders.
1. General Requirements for Due Diligence
    In response to comments, the final regulations modify the general 
requirements for identifying and documenting account holders in a 
number of ways. For example, the final regulations modify the record 
retention requirements for offshore obligations to allow an FFI to 
retain a notation in its files regarding the documentary evidence 
examined, rather than retaining a copy of the documentary evidence 
itself, unless the FFI is required pursuant to its AML due diligence to 
retain copies of documentation reviewed. In such cases, the final 
regulations no longer require a notation of the name of the person who 
reviewed the documentary evidence.
    The final regulations also provide special procedures to identify 
and document accounts acquired in mergers or bulk acquisitions for 
value from another financial institution. For accounts acquired from 
nonparticipating FFIs or deemed-compliant FFIs that do not apply the 
final regulations' due diligence procedures, the final regulations 
allow a participating FFI to apply preexisting account identification 
and documentation procedures. For accounts acquired from another 
participating FFI, certain deemed-compliant FFIs, or U.S. financial 
institutions, the final regulations allow a participating FFI to rely 
on the chapter 4 determinations made by such transferor financial 
institution, subject to certain conditions. Additionally, the final 
regulations in Sec.  1.1471-4 incorporate by reference the revised 
rules for documentation standards, validity periods of documentation, 
and reliance on valid documentation collected by other withholding 
agents provided in Sec.  1.1471-3(c).
2. Account of a Preexisting Customer and Sharing of Account 
Documentation
    Comments requested that a new account opened at an FFI by a 
customer that has a preexisting account with the FFI be treated as a 
preexisting account rather than a new account. Comments stated that in 
such cases, FFIs generally do not obtain documentation from the 
customer for AML due diligence purposes. Recognizing the substantial 
burden for the FFI to separately document an existing customer, the 
final regulations revise the definition of a preexisting obligation to 
permit a new account of a customer that has a preexisting account to be 
treated as a preexisting account provided that the FFI maintaining the 
account also treats the new account and the preexisting account as one 
account for purposes of applying AML due diligence, aggregating 
balances, and applying the standards of knowledge for purposes of 
chapter 4 to all such accounts. The final regulations allow this 
treatment on a group basis for expanded affiliated groups and sponsored 
FFI groups that share documentation within the group. In addition, to 
address comments concerning the burden of documenting multiple accounts 
of a customer generally (regardless of whether any such accounts are 
preexisting accounts), the final regulations allow a participating FFI, 
participating FFI group, or a sponsored FFI group to apply the 
provisions for documentation sharing systems described in Sec.  1.1471-
3(c)(8).
3. Change in Circumstances
    In response to comments that the obligations of a participating FFI 
following a change in circumstances were unclear in the proposed 
regulations, the final regulations provide that an FFI must retain a 
record of documentation to establish the account holder's chapter 4 
status within the earlier of 90 days from the date of a change in 
circumstances or the date a withholdable payment or foreign passthru 
payment is made to the account or, if unable to do so, must treat such 
account as held by a recalcitrant account holder or nonparticipating 
FFI (as applicable).
4. Entity Accounts
    Comments indicated that for certain investment entities, direct 
investment may be held in bearer form so that the investment entity is 
unable to document such account holders until the time of payment. The 
final regulations allow a participating FFI that is an investment 
entity to document an account holder of a preexisting account that is 
in bearer form at the time of payment.
    The final regulations clarify that in addition to documenting the 
entity account holder, a participating FFI is also required to document 
the payee (if other than the account holder) to the extent necessary to 
determine whether withholding applies. For example, if an account is 
held by an NFFE that is a flow-through entity (other than a WP, WT, or 
excepted NFFE), the participating FFI is also required to identify and 
document the partners, owners, or beneficiaries of such entity to 
determine if withholding is required

[[Page 5883]]

with respect to payments of U.S. source FDAP income made to such 
account.
5. Individual Accounts
a. New Accounts
    Comments requested alternative documentation options to address 
difficulties in obtaining U.S. tax forms from account holders. In 
response to these comments, the final regulations modify the 
identification and documentation procedures of participating FFIs with 
respect to individual accounts that are new accounts to permit certain 
alternative forms of documentation. For example, the final regulations 
permit a participating FFI to rely on information provided by a third-
party credit agency to establish an account holder's foreign status 
when certain conditions are met.
    The final regulations adopt the requirement in the proposed 
regulations for a participating FFI to review all information collected 
in connection with the opening or maintenance of each account, 
including documentation collected as part of the participating FFI's 
account opening procedures and documentation collected for other 
regulatory purposes, to determine if an account holder's claim of 
foreign status is unreliable or incorrect. The final regulations 
clarify that a participating FFI is required in such reviews to apply 
the standards of knowledge provided in Sec.  1.1471-3(e) for offshore 
obligations held by individuals. If the participating FFI is not able 
to establish an account holder's status as a foreign person, the final 
regulations require the participating FFI to retain a record of a U.S. 
TIN and, if necessary, a valid and effective waiver described in 
section 1471(b)(1)(F)(i) to establish an account holder's status as a 
U.S. person. The final regulations allow a participating FFI to retain 
a record of a U.S. TIN by any means (that is, not exclusively by 
retaining a record of a Form W-9).
    The final regulations also provide alternative identification and 
documentation procedures for certain cash value insurance or annuity 
contracts. Comments noted that when a group life insurance contract or 
group annuity contract is issued to an employer and individual 
employees are the insured/beneficiaries, the insurance company does not 
have a direct relationship with the employee/certificate holders at 
inception of the contract. In response, the final regulations do not 
require the insurance company to document each employee until the date 
on which an amount is payable to an employee/certificate holder or 
beneficiary if the participating FFI obtains a certification from an 
employer that no employee/certificate holder (account holder) is a U.S. 
person and certain other conditions are satisfied (for example, that 
the number of employees covered under the contract exceeds 25). 
Comments also requested relief from the requirement to identify and 
document beneficiaries of cash value insurance contracts. In response, 
the final regulations provide that a participating FFI may presume that 
an individual beneficiary (other than the owner) receiving a death 
benefit with respect to a life insurance contract that is a cash value 
insurance contract is a foreign person, and is therefore not required 
to retain a record of documentation from such person, unless the 
participating FFI has actual knowledge or reason to know that the 
beneficiary is a U.S. person. A participating FFI has reason to know 
that a beneficiary of a cash value insurance contract is a U.S. person 
if the information collected by the participating FFI and associated 
with the beneficiary contains U.S. indicia.
b. Preexisting Accounts
    Comments requested clarification with regard to procedures for 
identifying and documenting preexisting accounts. In response to these 
comments, the final regulations provide a more detailed explanation of 
the application of these rules. For example, the final regulations 
expressly provide that a participating FFI is not required to retain a 
record of documentation from the account holder until there is a change 
in circumstances if the identification and documentation procedure 
specified for preexisting accounts is applied and no U.S. indicia are 
identified. In addition, the final regulations expressly provide that 
for preexisting accounts, a participating FFI may apply the 
identification and documentation procedure for either new accounts or 
preexisting accounts.
    The proposed regulations did not coordinate the rules in Sec.  
1.1471-3(e) (covering standards of knowledge) with the documentation 
requirements under Sec.  1.1471-4(c) to establish an account holder's 
foreign status when U.S. indicia are associated with the account. To 
provide such coordination, Sec.  1.1471-4(c) incorporates by reference 
the standards of knowledge in Sec.  1.1471-3(e).
c. Presumption of Status for Individual Accounts
    Comments noted that the proposed regulations were unclear 
concerning the application of the presumption rules to individual 
account holders of participating FFIs. In response to these comments, 
the final regulations clarify that the presumption rules of Sec.  
1.1471-3(f) do not apply to individual account holders of a 
participating FFI. A participating FFI must complete the requisite 
identification and documentation procedures with respect to each 
account within the time period provided by Sec.  1.1471-5(g)(3) (start 
of recalcitrant account holder status), or, if unable to do so, must 
treat such account as held by a recalcitrant account holder.
d. Preexisting Individual Accounts Previously Documented
    With respect to the exception to the preexisting account 
identification procedure (other than the relationship manager inquiry) 
for an account documented as held by foreign individuals for purposes 
of chapter 61 or the QI, WP, or WT agreement, the final regulations 
clarify that an individual account holder's foreign status has been 
documented under chapter 61 if the participating FFI has retained a 
record of the documentation required under chapter 61 to establish the 
individual's foreign status and the account received a reportable 
payment (as defined under section 3406(b)) in any prior year. With 
respect to QIs, WPs, and WTs, an account holder's foreign status has 
been documented if the QI, WP, or WT has met the relevant documentation 
requirements of its agreement with respect to an account holder that 
received a reportable amount in any year in which the agreement was in 
effect.
e. Certifications of Responsible Officer
    The final regulations retain the requirement in the proposed 
regulations for a responsible officer to certify, to the best of his/
her knowledge after conducting a reasonable inquiry, that the 
participating FFI does not have any formal or informal practices or 
procedures in place to assist account holders in avoiding chapter 4, 
such as advising account holders to split up their accounts to avoid 
reporting as high-value accounts. Comments requested additional 
examples of policies that violate the certification. The final 
regulations provide such additional examples, including: advising that 
account holders of U.S. accounts close, transfer, or withdraw from 
their account to avoid reporting; intentional failures to disclose a 
known U.S. account; or advising that an account holder remove U.S. 
indicia from its account information. In response to comments, the 
final regulations also provide that an email requiring responses from 
relevant

[[Page 5884]]

customer on-boarding and management personnel as to whether they 
engaged in any such practices is considered a reasonable inquiry for 
purposes of the certification.
    Comments requested specific timing for making the certifications 
regarding completion of required due diligence. The final regulations 
respond to these comments and also simplify and consolidate the 
certifications. The final regulations provide that these certifications 
may be made concurrently and no later than 60 days following the date 
that is two years after the effective date of the FFI agreement. See 
section V.F.3 of this preamble for a discussion of a responsible 
officer's periodic certification requirements.
    Comments also requested clarification on a responsible officer's 
responsibilities if he/she could not make the required certification. 
The final regulations provide that a responsible officer may make a 
qualified certification stating why the general certification cannot be 
made and that corrective actions will be taken by the responsible 
officer.

D. Account Reporting

1. In General
    As in the proposed regulations, the final regulations indicate that 
the FFI that maintains an account is generally responsible for 
reporting the account in accordance with the reporting rules under 
Sec.  1.1471-4(d). The final regulations add in Sec.  1.1471-5 a rule 
to determine if an FFI is treated as maintaining an account.
    The final regulations describe the reporting responsibilities of a 
sponsoring entity that has agreed to fulfill the reporting requirements 
of a sponsored FFI and generally require the sponsoring entity to 
report accounts of the sponsored FFI in the manner the sponsored entity 
would otherwise be required to report if it were a participating FFI.
2. Account Balance or Value
    In response to comments generally requesting that the final 
regulations accommodate current business practices of FFIs, the final 
regulations provide that a participating FFI must report the average 
balance or value of the account to the extent that the FFI reports 
average balances or values to the account holder for a calendar year 
and otherwise to report the balance or value of the account as of the 
end of the calendar year.
3. Payments
    The final regulations clarify that any distribution (including a 
distribution that would be considered a redemption) made to an account 
holder with respect to a cash value insurance contract or annuity 
contract must be reported under Sec.  1.1471-4(d)(4)(iv)(C) without 
regard to the U.S. tax treatment.
4. Section 953(d) Insurance Companies and Reporting in a Manner Similar 
to Section 6047(d)
    Comments requested that a foreign insurance company that has made 
an election under section 953(d) be excluded from the definition of an 
FFI. The final regulations do not adopt this comment when the foreign 
insurance company is not licensed to do business in the United States. 
How a foreign insurance company and its United States shareholders are 
taxed is immaterial to the need for reporting with regard to insurance 
or annuity contracts issued by the insurance company to its customers. 
Therefore, the final regulations provide that the term U.S. person does 
not include an insurance company that has made an election under 
section 953(d) if the company is not licensed to do business in any 
State. However, a foreign insurance company that has made an election 
under section 953(d) and is licensed to do business in the United 
States would be considered, for purposes of chapter 4, a U.S. person 
and, therefore, would remain subject to reporting with respect to its 
life insurance and annuity contracts under section 6047(d), not chapter 
4.
    Comments also requested that a foreign insurance company be 
permitted to satisfy its chapter 4 reporting obligations by reporting 
under section 6047(d). Permitting a foreign insurance company that is 
not licensed to do business in the United States to report only the 
information required under section 6047(d) would provide insufficient 
reporting for FATCA purposes because section 6047(d) reporting applies 
only to distributions made under a contract issued by an insurance 
company licensed to do business under the laws of a State.
    In response to the comments, however, the final regulations permit 
an insurance company participating FFI that is not licensed to do 
business in the United States to elect to report its chapter 4 account 
information with respect to its life insurance and annuity contracts in 
a manner similar to section 6047(d) reporting. Under this election, an 
insurance company participating FFI reports the sum of: (1) a cash 
value or annuity contract's account balance or value; and (2) any 
amount paid under the contract as a ``gross distribution'' in Box 1 of 
Form 1099-R. The participating FFI could then check box 2b to indicate 
the taxable amount is not determined.
5. Special Reporting for Calendar Year 2013
    The final regulations incorporate the reporting requirements in 
Announcement 2012-42, 2012-47 I.R.B. 561 with respect to calendar year 
2013. The final regulations provide that if an FFI agreement has an 
effective date that is on or before December 31, 2014, the 
participating FFI is required to report U.S. accounts that it 
maintained during 2013 that are outstanding on December 31, 2013. The 
final regulations adopt the streamlined reporting rules provided in the 
proposed regulations. The final regulations also eliminate the proposed 
regulations' requirement for reporting by September 30, 2014, and 
instead permit participating FFIs to report for both calendar years 
2013 and 2014 on or before March 31, 2015.

E. Expanded Affiliated Group Requirements

    The final regulations do not incorporate comments suggesting the 
sunset date for limited branches and limited FFIs be extended beyond 
December 31, 2015. The final regulations also do not adopt suggestions 
to relax the requirement that all members of an expanded affiliated 
group be participating FFIs, deemed-compliant FFIs, or limited FFIs. 
The Treasury Department and the IRS believe that IGAs are the 
appropriate vehicle to address these concerns.

F. Verification

1. In General
    The final regulations include the verification and certification 
requirements for participating FFIs. These verification procedures rely 
on a responsible officer (or designee) to establish a compliance 
program that includes policies, procedures, and processes sufficient 
for the participating FFI to satisfy the requirements of the FFI 
agreement. The participating FFI must subject its compliance program to 
periodic review. The responsible officer may be any officer of any 
participating FFI or reporting Model 1 FFI in the participating FFI's 
expanded affiliated group with sufficient authority to fulfill the 
duties of a responsible officer described in the final regulations. The 
responsible officer may designate others to implement and oversee the 
compliance with the verification requirements, but must make any 
required certifications to the IRS (as described below).

[[Page 5885]]

2. Consolidated Compliance Program
    In response to comments supporting the approach set forth in Notice 
2011-34 for an optional consolidated compliance program, the final 
regulations provide for such a program. Under the final regulations, a 
participating FFI, reporting Model 1 FFI, or U.S. financial institution 
(compliance FI) may agree to establish and maintain a consolidated 
compliance program and perform a consolidated periodic review on behalf 
of one or more FFIs in the same expanded affiliated group that elect 
this option (the consolidated compliance group). The consolidated 
compliance group is not required to include every FFI in the expanded 
affiliated group, and an expanded affiliated group may have multiple 
consolidated compliance groups organized under different or the same 
compliance FI. The final regulations also require a sponsoring entity 
to act as the compliance FI for all of the FFIs that it sponsors 
(including any certified deemed-compliant FFIs that it sponsors).
    It is anticipated that additional guidance will be provided in 
either the instructions to the registration system or the FFI agreement 
for an electing FFI to identify itself as part of a consolidated 
compliance group and procedures for the responsible officer of the 
compliance FI to make the required certifications on behalf of the 
consolidated compliance group.
3. Certification of Compliance
    The final regulations require the responsible officer, on behalf of 
the participating FFI, to periodically certify to the IRS that the FFI 
is in compliance with the requirements of the FFI agreement. Such 
certification is required once every three years. In advance of such 
certification, a participating FFI is required to review its compliance 
program and its compliance with the requirements of the FFI agreement. 
In consideration of the results of this review, the responsible officer 
is required to certify to the IRS that it maintains effective internal 
controls and that there were no material failures during the 
certification period, or any material failures that did occur were 
corrected. A material failure is a failure of the participating FFI to 
fulfill the requirements of the FFI agreement if the failure was the 
result of a deliberate action by the participating FFI to avoid the 
requirements of the FFI agreement or was an error attributable to a 
failure to implement sufficient internal controls. The final 
regulations provide that a material failure that occurs in limited 
circumstances will not result in an event of default. If a material 
failure occurring during the certification period has not been 
corrected, or if an event of default has occurred, the final 
regulations provide that a responsible officer may instead make a 
qualified certification.
4. IRS Review of Compliance
    Comments requested guidance on the standards the IRS would apply 
when requesting additional information from a participating FFI to 
determine its compliance with its FFI agreement. The final regulations 
provide for general inquiries under which the IRS contacts the 
participating FFI to request additional information regarding the 
information reported on the returns filed by the participating FFI, and 
for inquiries when the IRS determines in its discretion that there may 
have been substantial non-compliance with an FFI agreement. The IRS 
expects that inquiries regarding substantial non-compliance will not be 
made on a routine basis. If a determination that there may have been 
substantial non-compliance is made, the IRS may inquire as to the FFI's 
compliance with certain requirements of the FFI agreement and may 
request information necessary to verify the participating FFI's 
compliance with the FFI agreement, such as a description of the 
participating FFI's procedures for conducting its periodic review. The 
IRS may also request the performance of specified review procedures 
(including an external audit). If the IRS determines, based upon its 
review, that the FFI has not substantially complied with the 
requirements of an FFI agreement, it will deliver a notice of event of 
default.

 G. Event of Default

    The final regulations define an event of default of the FFI 
agreement and describe procedures for a participating FFI to remediate 
an event of default. Comments expressed concern that any failure to 
comply with an FFI agreement would result in termination of that 
agreement. In response to these comments, the final regulations clarify 
that an event of default does not result in automatic termination of 
the FFI agreement. The final regulations provide that if the IRS 
becomes aware of an event of default, it will deliver a notice of 
default to the participating FFI and allow the participating FFI to 
develop a plan to remediate the event of default. If the participating 
FFI fails to respond to the notice of default or comply with an agreed-
upon remediation plan, the IRS may terminate the FFI's participating 
FFI status within a reasonable period of time, subject to an FFI's 
request for reconsideration of termination by written request to the 
LB&I Director for Foreign Payments Practice.

H. Collective Refunds

    The final regulations provide that a participating FFI (or a 
reporting Model 1 FFI) may file a collective refund claim on behalf of 
its account holders and payees that were overwithheld upon under 
chapter 4, subject to certain conditions and procedural requirements.

I. Legal Prohibitions on Reporting U.S. Accounts and Withholding

    In response to comments requesting clarification on whether an FFI 
can enter into an FFI agreement if foreign law imposes prohibitions on 
the FFI's ability to report or withhold, the final regulations clarify 
that an FFI may enter into an FFI agreement if it can meet the 
requirements of Sec.  1.1471-4(i). The final regulations require, 
however, that if foreign law prohibits a participating FFI from 
fulfilling its withholding obligations with respect to an account, the 
participating FFI must close the account within a reasonable time or, 
if local law prohibits closing the account, the participating FFI must 
block or transfer the account. Similarly, if a participating FFI is 
prohibited by foreign law, absent a waiver, from reporting information 
on an account that it must treat as a U.S. account, the final 
regulations provide that the participating FFI must request a waiver of 
foreign law from such account holder and if such waiver is not obtained 
within a reasonable period of time, the participating FFI must close or 
transfer such account.

VI. Comments and Changes to Sec.  1.1471-5--Definitions Applicable to 
Section 1471

A. U.S. Account

    Comments requested additional exceptions from the definition of 
U.S. account for low-value accounts other than preexisting accounts and 
the depository account exception provided by section 1471(d)(1)(B). In 
response to these comments, the Treasury Department and the IRS have 
provided a $50,000 exception for cash value insurance contracts by 
amending the definition of financial account, discussed below.

B. Account Holder

    Comments requested clarification of whether an entity that is 
disregarded as an entity separate from its owner under Sec.  301.7701-
2(c)(2)(i) (disregarded entity)

[[Page 5886]]

is treated as an account holder. In response to these comments, because 
the definition of person excludes a disregarded entity, the final 
regulations clarify that an account held by a disregarded entity shall 
be treated as held by the person owning such entity.
    Comments expressed concern regarding the identification of the 
account holder of insurance and annuity contracts. The final 
regulations provide that an insurance or annuity contract that is a 
financial account is treated as held by each person that can access the 
contract value (for example, through a loan, withdrawal, or surrender) 
or change a beneficiary under the contract. If no person can access the 
contract value or change a beneficiary under the contract, then the 
contract is treated as held by both the person(s) named in the contract 
as the owner(s) of the contract and each beneficiary under the 
contract. When the obligation to pay any benefit under the contract 
becomes fixed, the person entitled to such benefit is treated as a 
holder of the contract.

C. Financial Accounts

1. Depository Accounts
    In response to comments, the final regulations limit the scope of 
the term depository account in a number of ways. For example, the final 
regulations exclude certain escrow accounts established for commercial 
transactions from treatment as financial accounts. The final 
regulations also exclude negotiable debt instruments that are traded on 
a regulated market or over-the-counter market and distributed through 
financial institutions. In response to comments, the final regulations 
also clarify the meaning of ``any other similar instrument'' in the 
definition of a depository account. The final regulations limit the 
scope of a depository account to an account for the placing of money 
(as opposed to the holding of property) in the custody of an entity 
engaged in a banking or similar business. The final regulations also 
clarify that a credit balance with respect to a credit card account 
issued by a credit card company is a depository account.
    Comments requested guidance regarding the specific circumstances in 
which an amount held by an insurance company would be treated as a 
depository account. The final regulations provide that a depository 
account includes an amount that an insurance company holds under a 
guaranteed investment contract or under a similar agreement to pay or 
credit interest thereon. The final regulations also provide that a 
depository account does not include an advance premium or premium 
deposit received by an insurance company, provided the prepayment or 
deposit relates to an insurance contract for which the premium is 
payable annually and the amount of the prepayment or deposit does not 
exceed the annual premium for the contract. Such amounts are also 
excluded from cash value for purposes of determining whether a contract 
is a cash value insurance contract.
2. Equity and Debt Interests
    With regard to equity or debt interests in investment entities, the 
final regulations revise the financial account definition to correspond 
to the changes discussed below to the definition of FFI for investment 
entities. Accordingly, the final regulations generally remove from the 
financial account definition debt or equity interests in investment 
entities that are described solely in Sec.  1.1471-5(e)(4)(i)(A), which 
are generally investment advisors or asset managers. This treatment 
parallels the treatment of equity and debt interests in entities that 
act solely as depository institutions or custodial institutions.
    Comments requested that bank holding companies should be treated 
like depository institutions for purposes of the financial account 
exclusion for non-regularly traded debt and equity interests to cover 
cases in which the holding company raises funds for its subsidiaries. 
Comments noted that these interests are often held through custodial 
institutions that are in a better position to document the holders and 
report and withhold on such instruments. The final regulations respond 
to these comments by generally removing from the definition of 
financial account debt or equity interests in holding companies and 
treasury centers of expanded affiliate groups whose aggregate income is 
derived primarily from active NFFEs, depository institutions, custodial 
institutions, and insurance companies.
    Nevertheless, the final regulations limit the exception from 
financial account for a debt or equity interest in a holding company or 
a treasury center so that the exception does not apply in cases in 
which the debt or equity interest tracks the performance of one or more 
investment entities described in paragraph Sec.  1.1471-5(e)(4)(i)(B) 
or (C) (generally traders and investment vehicles) or one or more 
passive NFFEs that are members of entity's expanded affiliated group 
rather than of the group as a whole. The final regulations also provide 
anti-abuse rules if the value of the interest is determined, directly 
or indirectly, primarily by reference to assets that give rise (or 
could give rise) to withholdable payments, or the interest is issued 
with a principal purpose of avoiding the reporting or withholding 
requirements of chapter 4.
    The proposed regulations provided that an equity or debt interest 
in certain types of financial institutions would be treated as a 
financial account only if the value of the interest is determined, 
directly or indirectly, primarily by reference to assets that give rise 
(or could give rise) to withholdable payments. Comments requested 
additional guidance regarding when an equity or debt interest would be 
considered to be determined, directly or indirectly, primarily by 
reference to assets that give rise (or could give rise) to withholdable 
payments. The final regulations provide that the value of an interest 
is determined, directly or indirectly, primarily by reference to assets 
that give rise (or could give rise) to withholdable payments if the 
amount payable upon redemption of the interest is either secured or 
determined primarily by reference to assets that give rise to 
withholdable payments. The value of a debt interest is determined, 
directly or indirectly, primarily by reference to assets that give rise 
(or could give rise) to withholdable payments if the debt is 
convertible into stock of a U.S. person, amounts payable as interest or 
upon redemption of the debt are determined primarily by reference to 
profits or assets of a U.S person, or the debt is secured by assets of 
a U.S. person.
    A number of comments were received regarding the exception from 
financial account status for debt and equity that is regularly traded 
on an established securities market. The final regulations respond to 
comments by adopting the definitions provided in the final regulations 
under section 1472, including the revisions made to those regulations 
that provide a special rule for the initial year of public offering. 
The final regulations also clarify that an interest is not regularly 
traded if the holder of the interest (other than a financial 
institution acting as an intermediary) is registered on the books of 
the investment entity. This rule does not apply to the extent a 
holder's interest is registered prior to January 1, 2014, on the books 
of the investment entity. The proposed regulations excluded debt or 
equity interests in an investment entity that are regularly traded 
because such interests are typically held through other financial 
institutions, so that reporting by the issuing entity is not necessary 
to fulfill the purposes of chapter 4. Where that is not the case, the 
final regulations clarify

[[Page 5887]]

that such interests are treated as financial accounts. See Sec.  
1.1471-3(c)(9)(iii), however, for when the entity may rely upon a 
certification from broker acting as an agent of a payee (including 
receiving of payments on behalf of the payee from the entity).
3. Accounts Held by Estates
    With regard to accounts held by estates, in response to comments, 
the final regulations conformed the chapter 4 rules with the reporting 
rules under section 6038D by excepting accounts held by estates from 
the definition of financial account.
4. Insurance Definitions and Contracts
    Comments requested that the definitions of ``annuity contract,'' 
``life insurance contract,'' and ``insurance company'' in the proposed 
regulation be modified to eliminate the need for foreign companies to 
become proficient in the specialized definitions of these terms under 
U.S. tax rules defining these products and to accommodate local law 
definitions and practices. In response to comments, the final 
regulations replace the references to U.S. tax law rules when defining 
these terms with plain language definitions and incorporate, where 
appropriate, references to local law definitions and practices.
    Comments also requested that the final regulations clarify when an 
insurance company is a financial institution or a NFFE, because an 
insurance company's reserve activities could cause an insurance company 
that is not a specified insurance company to qualify as a depository 
institution, custodial institution, or investment entity. In response 
to these comments, the final regulations clarify that: (1) an insurance 
company that is not a specified insurance company must independently 
determine whether it is a depository institution, custodial 
institution, or investment entity; (2) an insurance company's reserve 
activities with respect to its insurance contracts and annuity 
contracts are not taken into consideration in determining whether the 
company is a depository institution, custodial institution, or 
investment entity; and (3) an insurance company that is not a financial 
institution is a NFFE.
    The final regulations also respond to comments by expanding the 
exclusion from financial account status for certain term life insurance 
contracts. Because mortality risk under an insurance contract increases 
as the insured ages, the final regulations permit increasing periodic 
premium payments. To prevent front loading premiums, however, the final 
regulations require that the premiums be payable at least annually 
during the period the contract is in existence or until the insured 
attains age 90, and that the premiums do not decrease over time.
    In addition, the Treasury Department and the IRS did not accept 
comments requesting that return of premium be permitted to the extent 
that it did not exceed the aggregate premiums paid for the contract, 
without regard to mortality, morbidity, and expense charges. The 
Treasury Department and the IRS believe such instruments implicate the 
policy objectives of chapter 4. Accordingly, under the final 
regulations, if a policyholder at the beginning of January purchases a 
term life insurance contract with a $100,000 annual premium, terminates 
the contract on April 1st, and upon termination receives $75,000 as a 
return of the premium paid ($100,000 less $25,000 mortality, morbidity, 
and expense charges for the period the contract was in force), then the 
contract qualifies for the term contract exclusion from a cash value 
insurance contract. If, however, upon termination, the policyholder 
would receive an amount exceeding $75,000, the contract would not 
qualify for exclusion from financial account status as a term life 
insurance contract.
    Comments requested an exemption from financial account status for 
immediate pension or disability annuities that relate to exempt 
retirement or pension accounts. The final regulations respond to this 
comment by providing that a financial account does not include a non-
investment linked, non-transferable, immediate annuity purchased by the 
accountholder in connection with an exempt retirement or pension 
account.
    In response to comments requesting an expansion of the contracts 
that are exempt from financial account status, the final regulations 
made a number of revisions to the rules associated with cash value 
insurance contracts. The final regulations provide that an insurance 
contract is excluded from the definition of a financial account unless 
it has a cash value that exceeds $50,000 at any time during the 
calendar year, unless the participating FFI elects to report all 
contracts with a cash value. In addition, the final regulations exclude 
indemnity reinsurance contracts between two insurance companies from 
the definition of a cash value insurance contract and expand the 
exclusions from cash value to include a refund of premium upon the 
termination of a contract.
5. Exception for Certain Savings Accounts
    Numerous comments were received requesting that the proposed 
regulation's exceptions from financial account status for certain 
savings accounts be expanded to accommodate savings vehicles commonly 
used in a number of jurisdictions. In response to these comments, 
substantial revisions were made to the exceptions in order to 
accommodate more savings vehicles without significantly increasing the 
ability for U.S. persons to use such vehicles to avoid chapter 4 
reporting. For retirement and pension accounts, the excepted category 
is revised to eliminate the requirements that all contributions to the 
account be government, employer, or employee contributions and that the 
contributions be limited to earned income. In addition, the limitation 
on contributions is liberalized to allow plans that either have an 
annual contribution limit of $50,000 or less or a maximum lifetime 
contribution limit of $1,000,000 or less. The final regulations also 
add the condition that the relevant tax authorities require information 
reporting with respect to the account. For non-retirement savings 
accounts, the final regulations eliminate the requirement that 
contributions be limited by reference to earned income and instead 
require that the account be tax favored. The final regulations expand 
the definition of ``tax favored'' provided in the proposed regulations 
for purposes of these rules.
6. Account Balance or Value
    The proposed regulations did not provide express guidance on the 
manner in which debt interests should be valued. The final regulations 
revise the definition of account balance or value with respect to a 
debt interest to mean the principal amount of such debt.
    Comments noted that certain insurance companies value insurance and 
annuity contracts on the contract's anniversary date under normal 
business practices. In response to these comments, the final 
regulations allow the annual reporting of account balance or value of 
an insurance or annuity contract to be based upon either the account 
value at calendar year end or the account value at each contract 
anniversary date. Also, the final regulations provide that in the case 
of an annuity contract for which no value is reported to the account 
holder, the annuity is valued using the discount interest rate and 
mortality tables that are either (1) prescribed under section 7520 and 
the regulations thereunder, or (2)

[[Page 5888]]

used by the FFI to determine the amounts payable under the contract.
7. Maintaining a Financial Account
    The Treasury Department and the IRS received comments that the 
proposed regulations could be read to provide that a single account 
could be maintained by multiple entities (such as both a collective 
investment vehicle and its transfer agent), thereby creating multiple 
documentation, reporting, or withholding obligations for each entity. 
In response to these comments, the final regulations identify the 
entity that will be treated as maintaining a financial account in order 
to avoid requiring multiple entities to document, withhold, and report 
with respect to a financial account.

D. Foreign Financial Institution

    In response to comments requesting conformity between IGA 
definitions and the chapter 4 definitions, the final regulations amend 
the definition of FFI to provide that IGAs determine whether a resident 
entity described in the applicable IGA is an FFI. A corresponding 
change was made to the definition of NFFE. The statutory and regulatory 
definitions apply for entities that are not resident in IGA 
jurisdictions.

E. Financial Institution

1. Depository Institution
    With regard to the definition of a depository institution, the 
Treasury Department and the IRS received a number of comments regarding 
whether merely accepting deposits was or should be sufficient to create 
depository institution status. In response to these comments, the final 
regulations clarify that accepting deposits is necessary but not 
sufficient to create depository entity status. Therefore, an entity 
that accepts deposits must also engage in one or more of the enumerated 
banking or financing activities (adapted from section 864's and section 
954(f)'s active banking, financing, and similar business rules). The 
final regulations also provide that, to be treated as a depository 
institution, an entity needs to engage on a regular basis in one or 
more such activities. In addition, the final regulations clarify that 
an entity that completes money transfers by instructing agents to 
transmit funds is not in a banking or similar business because it does 
not accept deposits or other similar temporary investments of funds. 
The final regulations also clarify that an entity that solely accepts 
deposits from persons as collateral or security pursuant to a lease, 
loan, or similar financing arrangement is not a depository institution. 
This exception is intended to exclude from FFI status entities such as 
finance companies that do not fund their operations through deposits 
and entities acting as networks for credit card banks that hold cash 
collateral from such banks.
2. Custodial Institution
    With regard to the definition of a custodial institution, the 
proposed regulations define custodial institutions by reference to 
whether over 20 percent of an entity's income is ``attributable to the 
holding of financial assets.'' In response to comments, the final 
regulations clarify the specific types of income that will be treated 
as attributable to holding financial assets.
    In addition, in response to comments that new institutions (starts-
ups) cannot qualify as custodial institutions, the final regulations 
provide a special rule for start-up entities that bases custodial 
institution status on the expectations and purposes of the entity.
3. Investment Entity
    Comments requested that the definition of ``financial institution'' 
be clarified and more narrowly defined to exclude passive, non-
commercial investment vehicles, including trusts. The IGAs adopt this 
approach by requiring an investment entity to undertake activity on 
behalf of customers. The IGAs also expand the definition of an 
investment entity to include an entity that provides certain financial 
services to customers, such as individual or collective portfolio 
management or otherwise investing, administering, or managing funds or 
money on behalf of other persons, regardless of whether the entity 
holds financial assets.
    Taking into consideration comments that the provisions of the final 
regulations should conform as closely as possible to the provisions of 
the IGAs, the final regulations generally incorporate the definition of 
investment entity contained in the IGAs by providing that an investment 
entity includes any entity that primarily conducts as a business on 
behalf of customers: (1) trading in an enumerated list of financial 
instruments; (2) individual or collective portfolio management; or (3) 
otherwise investing, administering, or managing funds, money, or 
certain financial assets on behalf of other persons. In addition, the 
final regulations limit the scope of the proposed regulations' 
definition of investment entity by treating an entity (other than an 
entity that primarily conducts as a business on behalf of customers one 
of the activities enumerated in the preceding sentence) the gross 
income of which is primarily attributable to investing, reinvesting, or 
trading as an investment entity only if the entity is managed by a 
depository institution, a custodial institution, another investment 
entity, or an insurance company that qualifies as a financial 
institution. Accordingly, passive entities that are not professionally 
managed are generally treated as passive NFFEs rather than as FFIs. 
However, entities that function or hold themselves out as mutual funds, 
hedge funds, or any similar investment vehicle established with an 
investment strategy of investing, reinvesting, or trading in financial 
assets are investment entities.
    Consistent with the approach of the proposed regulations, the final 
regulations provide that an entity primarily conducts an activity as a 
business if gross income attributable to such activity equals or 
exceeds 50 percent of the entity's gross income.
4. Insurance Companies and Holding Companies
    With regard to insurance companies and holding companies of 
insurance companies, the final regulations provide that a holding 
company that is a member of an expanded affiliated group that includes 
an insurance company will be treated as an FFI if it issues or is 
obligated to make payments with respect to a cash value insurance 
contract or annuity contract, regardless of whether it would otherwise 
be treated as an FFI.
5. Certain Holding Companies and Treasury Centers
    Comments noted that under many circumstances a company within an 
affiliated group of companies that serves as a holding company or 
provides treasury services for or on behalf of group members should not 
be considered a financial institution under chapter 4. In response to 
these comments, the final regulations limit the circumstances under 
which a holding company or treasury center is treated as a financial 
institution. Under the final regulations, such entities are FFIs in two 
situations. First, subject to limited exceptions for nonfinancial 
groups, discussed below, such entities are FFIs if they are part of an 
expanded affiliated group that includes a depository institution, 
custodial institution, insurance company, or investment entity 
described in paragraph (e)(4)(i)(B) and (C) (not exclusively a 
financial service provider). Second, they are FFIs regardless of

[[Page 5889]]

whether they are a member of a nonfinancial group if they are formed in 
connection with or availed of by a collective investment vehicle, 
mutual fund, exchange traded fund, private equity fund, hedge fund, 
venture capital fund, leveraged buyout fund, or any similar investment 
vehicle established with an investment strategy of investing, 
reinvesting, or trading in financial assets. These rules help to ensure 
that holding companies and treasury centers cannot be used by financial 
groups with nonparticipating FFIs or limited FFIs to shelter payments 
from chapter 4 withholding.
6. Exceptions to FFI Status
    The Treasury Department and the IRS received a number of comments 
requesting more comprehensive exceptions to FFI status for holding 
companies and similar entities. Comments noted instances in which 
holding companies and other financial entities were part of a 
nonfinancial group, the activities of these entities were in 
furtherance of the nonfinancial business of the group, and the entities 
provided no meaningful investment opportunities to third-parties. In 
response to these comments, the final regulations provide more 
comprehensive exceptions to FFI status for certain nonfinancial group 
entities as described below. These entities are also excepted NFFEs for 
purposes of section 1472.
    In particular, the final regulations provide an exception to FFI 
status (and passive NFFE status for section 1472 purposes) for holding 
companies, treasury centers, and captive finance companies that are 
part of a nonfinancial group. In response to comments, excepted holding 
companies may be part of nonfinancial group structures that include 
tiers of holding companies. Nonfinancial groups are permitted to 
include FFI members to a limited extent when all such members are 
participating FFIs or deemed-compliant FFIs. In response to comments, 
the final regulations also provide that an excepted entity can provide 
a mixture of holding company, treasury center, and captive finance 
company functions so long as substantially all of its activities are 
such activities. The final regulations also provide that this excepted 
status does not apply to entities formed in connection with or availed 
of by private equity funds and similar arrangements.
    The final regulations also create a new exception to FFI status for 
excepted inter-affiliate FFIs. Comments noted that financial groups may 
include dormant entities, entities that were formed for a specific deal 
and were not subsequently liquidated, or entities formed for regulatory 
purposes whose activities are entirely within the financial group. In 
response to these comments, the final regulations provide that an 
entity that is a member of a PFFI group is not an FFI if it: (1) does 
not maintain financial accounts (other than accounts maintained for 
members of its expanded affiliated group); (2) does not hold an account 
with or receive payments from any withholding agent other than a member 
of its expanded affiliated group; (3) does not make withholdable 
payments to any person other than to members of its expanded affiliated 
group that are not limited FFIs or limited branches; and (4) has not 
agreed to report under Sec.  1.1471-4(d)(1)(ii) or otherwise act as an 
agent for chapter 4 purposes on behalf of any financial institution, 
including a member of its expanded affiliated group.
    In response to comments, the final regulations also provide an 
exception for an entity that is changing its line or business, provided 
that the entity previously qualified as an active NFFE.
    With regard to entities described in section 501(c), the final 
regulations exclude insurance companies described in section 501(c)(15) 
from the section 501(c) exception from FFI status. Section 501(c)(15) 
insurance companies are for-profit insurance companies that qualify for 
the exemption from U.S. tax because they are small companies, but are 
not in any way restricted from maintaining financial accounts for 
specified U.S. persons. Therefore, these entities are not low-risk, so 
as to warrant an exemption from FFI status.

F. Deemed-Compliant FFIs

1. In General
    The final regulations generally retain the same deemed-compliant 
categories that were included in the proposed regulations but have made 
several modifications and clarifications in response to comments 
received. In addition, the final regulations introduce new categories 
of deemed-compliant FFIs for certain credit card issuers, as described 
in Sec.  1.1471-5(f)(1)(i)(E), sponsored FFIs, as described in Sec.  
1.1471-5(f)(2)(iii), and limited-life debt investment entities, as 
described in Sec.  1.1471-5(f)(2)(iv). In response to comments, the 
deemed compliant category for retirement funds has been combined with 
the exempt beneficial owner category for a retirement fund in Sec.  
1.1471-6(f). Because a non-profit organization may be either an FFI or 
an NFFE, the category for non-profit organizations that are exempt from 
withholding under chapter 4 has been moved from the deemed-compliant 
FFI section to Sec.  1.1471-5(e)(5), which describes entities that are 
excepted from treatment as financial institutions and are treated 
instead as excepted NFFEs. The proposed regulations indicated that the 
Treasury Department and the IRS were considering whether an additional 
deemed-compliant category should be created for insurance companies. In 
response to comments, the final regulations instead permit insurance 
companies to qualify as local FFIs and FFIs with only low-value 
accounts.
    The Treasury Department and the IRS decline to adopt other 
recommendations to add to the categories of deemed-compliant FFIs to 
address jurisdiction-specific entities and arrangements and, instead, 
retain the proposed regulations' approach of using generally applicable 
attributes to define different categories of deemed compliant FFIs. 
Nevertheless, in the context of IGAs relating to the implementation of 
chapter 4, the Treasury Department will continue to identify entities 
that qualify as deemed-compliant FFIs on a jurisdiction-specific basis, 
and the final regulations treat those entities as deemed-compliant 
FFIs. In addition, the Treasury Department and the IRS have undertaken 
in other parts of these regulations to limit the number of entities 
that are subject to the chapter 4 rules. For example, as discussed 
herein, the category of exempt beneficial owners has been refined and 
expanded in response to comments and certain entities have been removed 
from the definition of FFI, either because they have neither customers 
nor assets relevant to the application of chapter 4 or because chapter 
4's purposes are adequately served by treating such entities as NFFEs.
2. Registered Deemed-Compliant FFIs
a. Local FFIs
    Comments requested that the final regulations expand the types of 
entities that qualify as local FFIs to include insurance companies, 
credit unions, and investment entities. The final regulations adopt 
these comments. The final regulations do not adopt comments that 
requested specific standards for an FFI to apply when determining 
whether it is regulated as a financial institution under the laws of 
its country of organization or incorporation. This requirement is 
intended merely to ensure that the government of incorporation or 
organization exercises some form of financial regulation over the FFI 
and, accordingly, is intended to be applied broadly.

[[Page 5890]]

    The final regulations have amended the requirement that a local FFI 
not have a fixed place of business outside its country of incorporation 
or organization to permit an FFI to have a location in another 
jurisdiction, provided that location is not publicly advertised and 
performs solely administrative support functions (that is, back office 
functions). The Treasury Department and the IRS otherwise intend for 
the local FFI category to be available only to FFIs whose activities 
are limited to a single country. Accordingly, the Treasury Department 
and the IRS declined to adopt other comments suggesting that the 
presence and activities of the local FFI and its expanded affiliated 
group should not be limited to one country.
    Comments pointed out that an FFI that services only the local 
population may advertise U.S. dollar denominated accounts for 
legitimate business reasons. In response to such comments, the final 
regulations eliminate the proposed regulations' prohibition against 
advertising U.S. dollar denominated deposit accounts or investments, 
provided that the FFI does not solicit customers or account holders 
outside its country of incorporation or organization. For this purpose, 
an FFI will not be considered to have solicited customers or account 
holders outside its country of incorporation or organization merely 
because it operates a Web site, provided that the Web site does not 
specifically indicate that the FFI maintains accounts for, or provides 
services to, nonresidents and does not otherwise target or solicit U.S. 
customers or account holders. Comments requested clarification as to 
whether an FFI would be considered to have solicited customers outside 
its country of incorporation or organization (the FFI's country) if it 
advertises through print, radio, or television that is distributed in 
multiple countries in addition to the FFI's country. The Treasury 
Department and the IRS have modified the regulations to indicate that 
an FFI whose print, radio, or television advertising is distributed 
outside the FFI's country is not considered to have solicited customers 
or account holder outside the FFI's country, provided the FFI's 
advertising is distributed or aired primarily within the FFI's country 
and the FFI does not advertise services or accounts for nonresidents 
and does not otherwise target or solicit U.S. customers or account 
holders.
    In response to comments stating that many countries do not impose 
information reporting requirements on their financial institutions, the 
final regulations provide that an FFI may still qualify as a local FFI 
notwithstanding that its accounts are not subject to information 
reporting or withholding requirements if the AML due diligence 
requirements of the FFI's country require the FFI to identify whether 
its account holders are residents of the FFI's country.
    Comments noted that many FFIs would fail to meet the 98 percent 
resident account holder threshold provided in Sec.  1.1471-
5(f)(1)(i)(A)(5), and requested that the Treasury Department and the 
IRS reduce the threshold. The local FFI exception is not intended to 
apply to FFIs that serve significant numbers of nonresident account 
holders. The 98 percent threshold is intended to provide limited 
flexibility in cases in which a financial institution otherwise 
qualifies as a local FFI but has a few nonresident account holders, for 
example because a prior resident has moved or taken a job in another 
country. Accordingly, the Treasury Department and the IRS have declined 
to reduce the 98 percent threshold necessary to qualify for the local 
FFI exception.
    The final regulations have amended the resident test in Sec.  
1.1471-5(f)(1)(i)(A)(5) to require the resident threshold be applied 
based on account value instead of the number of accounts. In addition, 
to accommodate territories and administrative regions that primarily 
service their mainland populations, the resident threshold has been 
modified to permit the FFI to apply the test based on residents or 
citizens rather than solely based on residents, as provided in the 
proposed regulations.
    Comments have also addressed the provision in the proposed 
regulations that required each member of the FFI's expanded affiliated 
group to qualify as a local FFI in order for any member of the group to 
qualify as a local FFI, and have noted that this requirement did not 
permit the group to have members that were NFFEs or other types of 
FFIs. The final regulations continue to provide that in order for an 
FFI to qualify as a local FFI, any FFI member of the expanded 
affiliated group should also be a local FFI in the same country, but 
provide an exception for members of the expanded affiliated group that 
are NFFEs or retirements funds described under Sec.  1.1471-6(f).
    The final regulations also add as a condition of local FFI status a 
requirement that the FFI not have policies or practices that 
discriminate against opening or maintaining accounts for U.S. 
individuals that are resident in the local FFI's country.
    The Treasury Department and the IRS declined to adopt a number of 
other comments requesting changes to the local FFI registered deemed 
compliant criteria. The Treasury Department and the IRS believe that 
the final regulations strike the appropriate balance between ensuring 
that only entities that are low-risk or otherwise not necessary to 
carry out the purposes of chapter 4 are given deemed-compliant status 
and providing rules that have application across a number of 
jurisdictions and legal and regulatory systems.
b. Nonreporting Members of PFFI Groups
    The final regulations retain the same requirements for a 
nonreporting member of a PFFI group that were provided in the proposed 
regulations except that the final regulations, in response to comments, 
conform this deemed-compliant category with other categories by 
allowing a nonreporting member of a PFFI group to close a U.S. account 
or an account of a nonparticipating FFI.
c. Qualified Collective Investment Vehicles
    The final regulations retain the deemed-compliant category for 
qualified collective investment vehicles. The primary purpose of this 
deemed-compliant category is to provide relief for investment entities 
that are owned solely through participating FFIs or directly by large 
institutional investors, payments to which would not be subject to 
withholding or reporting under chapter 4. For this reason, the Treasury 
Department and the IRS have generally declined to adopt comments that 
request an expansion of the types of investors permitted in a qualified 
collective investment vehicle except that the final regulations permit 
investors that are retirement plans and nonprofit organizations. An 
investment entity that has other types of investors may be able to 
qualify as a deemed-compliant FFI if it meets the requirements under 
Sec.  1.1471-5(f)(1)(i)(D) to be a restricted fund.
    Comments suggested that an investment entity that is not regulated 
as an investment fund by its country of incorporation or organization 
should be considered regulated as an investment fund if it is regulated 
by the country in which it operates or if its fund manager is regulated 
with respect to the investment entity. The final regulations adopt this 
suggestion and expand the cases in which an investment entity will be 
considered to be regulated to include cases in which the investment 
entity is regulated in all of the countries in which it is registered 
and all countries

[[Page 5891]]

in which it operates, or the investment entity's manager is regulated 
with respect to the investment entity in all countries in which the 
investment entity is registered and all countries in which the 
investment entity operates.
    Comments requested that a collective investment vehicle be eligible 
for deemed-compliant status notwithstanding that the vehicle previously 
issued bearer shares which remain outstanding if the vehicle 
discontinues issuing such shares. In response to these comments, the 
final regulations permit a qualified collective investment vehicle to 
have outstanding bearer obligations that were issued prior to January 
1, 2013, if the qualified collective investment vehicle identifies the 
status of the holder prior to payment, no shares are issued in bearer 
form, including reissuances of surrendered shares, after December 31, 
2012, and certain other conditions are met.
d. Restricted Funds
    As with qualified collective investment funds, comments suggested 
that a fund may not always be regulated by its country of incorporation 
or organization but should be considered regulated if it is regulated 
by the country in which it operates or if its fund manager is regulated 
with respect to the fund. The final regulations adopt this suggestion 
and expand the methods under which a fund will be considered to be 
regulated to include cases in which the fund is regulated in all of the 
countries in which it is registered and all countries in which it 
operates, or the fund's manager is regulated with respect to the 
investment entity in all countries in which the investment entity is 
registered and all countries in which the investment entity operates.
    Several comments indicated confusion regarding the requirement that 
all interests in the fund must be sold through identified distributors 
or redeemed directly by the fund. The final regulations clarify that 
interests in the fund may be issued by the fund directly if the 
investor can only dispose of those interests by having them redeemed or 
transferred by the fund, and not by selling them on a secondary market. 
Further, the regulations clarify that interests in the restricted fund 
can only be issued directly by the fund or by designated distributors 
described in Sec.  1.1471-5(f)(1)(i)(D)(3). Finally, the regulations 
clarify that interests in an investment fund that are issued through a 
transfer agent or a distributor that does not hold the interests as a 
nominee of the account holder are considered issued directly by the 
fund.
    Because the restricted fund category was created to provide relief 
for foreign funds that only target foreign investors, the Treasury 
Department and the IRS declined to adopt comments requesting that the 
restricted fund category be expanded to permit U.S. distributors. 
However, in response to requests that the restricted fund distributor 
provisions include foreign branches of U.S. financial institutions in 
the list of acceptable distributors described in Sec.  1.1471-
5(f)(1)(i)(D)(3), the final regulations modify the definition of a 
participating FFI to include a qualified intermediary (``QI'') branch 
of a U.S. financial institution. In addition, since a foreign branch of 
a U.S. financial institution that is a reporting Model 1 FFI is a 
registered deemed-compliant FFI, such foreign branch will also satisfy 
the distributor requirements of Sec.  1.1471-5(f)(1)(i)(D)(3).
    In response to comments that the renegotiation of distribution 
agreements will take a substantial amount of time and requests that a 
restricted fund be provided an additional year in order to renegotiate 
its distribution agreements to include the prohibitions required under 
Sec.  1.1471-5(f)(1)(i)(D), the Treasury Department and the IRS are 
providing investment funds until the later of June 30, 2014, or six 
months after the date the investment fund registers with the IRS as a 
registered deemed-compliant FFI to renegotiate its debt and equity 
interest distribution agreements to comply with Sec.  1.1471-
5(f)(1)(i)(D)(4) and (5). The Treasury Department and the IRS are also 
modifying the sales restrictions of Sec.  1.1471-5(f)(1)(i)(D)(4) to 
restrict sales only to specified U.S. persons, rather than all U.S. 
persons as was provided in the proposed regulations.
    The Treasury Department and the IRS did not adopt comments 
requesting that the prohibition on sales to U.S. persons be limited 
only to sales to U.S. residents because such change would be 
inconsistent with the policy objectives of chapter 4. The Treasury 
Department and the IRS also declined to remove the requirement that a 
restricted fund acquire or redeem all debt and equity interests that 
were issued through a distributor that ceases to be a qualifying 
distributor within six months of the distributor's change in status, 
but have modified the requirement to permit such interests to be 
transferred to another distributor described in Sec.  1.1471-
5(f)(1)(i)(D)(3).
    Comments also requested that a restricted fund be permitted to have 
preexisting direct accounts that were issued in bearer form before 
January 1, 2013, if the fund performs the required account 
identification procedures when the bearer certificate is presented for 
payment. In response, the final regulations permit a restricted fund to 
have outstanding bearer obligations that were issued prior to January 
1, 2013, if the restricted fund identifies the status of the holder 
prior to payment, no shares are issued in bearer form, including 
reissuances of surrendered shares, after December 31, 2012, and certain 
other conditions are met.
e. Qualified Credit Card Issuers
    The Treasury Department and the IRS have received comments 
requesting a deemed-compliant category for credit card issuers that 
accept deposits associated with the credit card. In response to these 
comments, the Treasury Department and the IRS are adding a new category 
of registered deemed-compliant FFIs to the final regulations for credit 
card issuers that agree to prevent a customer from having a deposit 
with the credit card issuer in excess of $50,000.
f. Registered Deemed-Compliant Procedural Requirements
    Comments requested that the qualified collective investment vehicle 
rules provide a cure period in the case of noncompliance that occurs 
following the FFI's registration with the IRS (including a change of 
status by the FFI's interest holders that results in disqualification 
as a qualified collective investment vehicle). The final regulations 
provide a registered deemed-compliant FFI with six months from the time 
it becomes ineligible for the registered deemed-compliant status to 
cure the default or notify the IRS of its change in status.
g. Sponsored FFIs
    Comments noted that in many cases it may be preferable for a 
trustee or fund manager to perform the due diligence and reporting for 
all of the FFIs which it manages on a consolidated basis. Comments also 
noted that a number of U.S. financial institutions have systems in 
place to perform all due diligence, withholding, and reporting 
obligations of its controlled foreign corporation subsidiaries for U.S. 
tax purposes. In response to these comments, the final regulations 
create a registered deemed compliant FFI category for sponsored FFIs 
for which a sponsoring entity agrees to perform all due diligence, 
withholding, reporting, and other requirements the sponsored FFI would 
have been required to perform if it were a participating FFI, and 
complies with certain other requirements.

[[Page 5892]]

3. Certified Deemed-Compliant FFIs
a. Nonregistering Local Banks
    In response to comments requesting a simplification of the 
definition of a bank for purposes of the nonregistering local bank 
category, the final regulations do not include a cross reference to 
section 581 and have clarified that, in addition to banks, certain 
credit unions or similar organizations may also qualify as 
nonregistering local banks. The final regulations amend the 
requirements applicable to a nonregistering local bank to conform with 
the changes made to the local FFI registered deemed-compliant category 
described above.
    Because the nonregistering local bank category was intended to 
apply only to very small FFIs, the Treasury Department and the IRS 
declined to adopt comments requesting that the threshold for total 
assets of the FFI be raised above $175 million for the FFI and $500 
million for the FFI's expanded affiliated group.
b. Sponsored, Closely Held Investment Vehicles
    The final regulations also create a certified deemed-compliant 
category for sponsored, closely held investment vehicles, which are 
sponsored by a sponsoring FFI in the same manner as the registered 
deemed-compliant category.
c. Limited Life Debt Investment Entities
    The Treasury Department and the IRS received comments stating that 
certain investment vehicles will be unable to comply with the 
registration and due diligence requirements in the regulations, thus 
necessitating a deemed-compliant category for such entities. In 
particular, comments have noted that vehicles that have a fixed 
lifespan and that were created for the purpose in investing in a 
limited type of debt obligation with the intent to hold such 
obligations until maturity or until the liquidation of the vehicle will 
often provide the trustee of the vehicle with limited authority to act 
in manner not specifically provided for under the agreement. In most 
cases, the trustee would not be permitted to register the vehicle as a 
participating FFI or comply with the due diligence requirements of a 
participating FFI unless the trust indenture requires the trustee to do 
so, the trustee is required to do so under a provision of law, or all 
of the investors in the vehicle agree to amend the trust agreement to 
provide the trustee with the power to act in such a manner. In order to 
provide time to address these limitations, the final regulations permit 
these entities to qualify as deemed-compliant FFIs for a limited period 
of time. After December 31, 2016, the deemed-compliant status of these 
entities terminates, and each such entity will be required to comply 
with the terms of any applicable IGA or otherwise register as a 
participating FFI.
4. Owner-Documented FFIs
    Comments stated that the $50,000 debt limit on owner-documented 
FFIs was too restrictive for common business practices of many small 
FFIs and requested that such entities be allowed to have unlimited debt 
interests provided the FFI identify and pass up to the withholding 
agent the chapter 4 status of all debt holders. In response to these 
comments, the final regulations no longer prohibit owner-documented 
FFIs from issuing debt interests that constitute financial accounts in 
excess of $50,000 to persons other than nonparticipating FFIs, provided 
that the owner-documented FFI reports all individuals and specified 
U.S. persons that directly or indirectly hold such interests (other 
than persons that hold such interests through a participating FFI, 
registered deemed-compliant FFI, certified deemed-compliant FFI, U.S. 
person, exempt beneficial owner, or excepted NFFE) to the designated 
withholding agent.
5. Restricted Distributors
    Comments requested that Sec.  1.1471-5(f)(4) be amended to permit a 
participating FFI to treat a distributor as a restricted distributor. 
The Treasury Department and the IRS agree that permitting a 
participating FFI that holds an interest in a restricted fund as a 
nominee to use a restricted distributor to distribute that interest 
fulfills the same purpose as permitting the restricted fund to use a 
restricted distributor. For this reason, the final regulations have 
been amended to permit a participating FFI to use a restricted 
distributor to distribute interests in a restricted fund that the 
participating FFI holds as a nominee.

G. Recalcitrant Account Holders

    The final regulations expand the definition of recalcitrant account 
holder to include an account holder that is documented as an NFFE 
(other than a WP or WT) but that fails to provide the information 
required under Sec.  1.1471-3(d) regarding its owners.
    The final regulations also revise the start of recalcitrant account 
holder status to coordinate with a participating FFI's withholding 
requirements. The final regulations require a participating FFI or 
deemed-compliant FFI to treat an account other than preexisting account 
or an account (including preexisting account) that undergoes a change 
in circumstances as held by a recalcitrant account holder beginning on 
the earlier of the date a withholdable payment or foreign passthru 
payment is made to the account or the date that is 90 days after 
account opening or the change in circumstances.
    The proposed regulations did not coordinate recalcitrant account 
holder status under chapter 4 with the chapter 61 backup withholding 
procedures for cases in which a participating FFI receives a notice 
from the IRS regarding a name and TIN mismatch for an account holder. 
The final regulations clarify that an account for which the 
participating FFI or deemed-compliant FFI receives a notice from the 
IRS indicating that the name and TIN combination provided for the 
account holder is incorrect will be treated as a recalcitrant account 
holder following the date of such notice if the account holder does not 
provide a correct name and TIN combination within the time prescribed 
in Sec.  31.3406(d)-5(a). The IRS intends to provide a process similar 
to the ``B Notice'' process of chapter 61 to notify an FFI of a name/
TIN mismatch for an account holder of a U.S. account that was reported 
under Sec.  1.1471-4(d). Under Sec.  31.3406(d)-5(a), a payor that 
receives a ``B Notice'' for a payee is required to start backup 
withholding and reporting reportable payments made to such payee on or 
before the 30th business day after the receipt of the ``B Notice.'' 
Similarly, a participating FFI or deemed-compliant FFI is required to 
treat an account holder for which it receives a notice indicating a 
name/TIN mismatch as a recalcitrant account holder (and withhold and 
report to the extent required) on or before the 30th business day after 
the FFI receives such notice.

H. Expanded Affiliated Group

    Proposed Sec.  1.1471-5(i) defined an expanded affiliated group for 
purposes of chapter 4. The final regulations make two material changes 
to the proposed regulations.
    First, some comments requested an exclusion from membership in an 
expanded affiliated group for entities formed through seed capital 
investments by another group member. These comments described a seed 
capital investment as an initial capital contribution made to an 
investment entity by an entity related to the manager of the investment 
entity for purposes of establishing a performance record before selling 
interests in the entity to unrelated investors or for purposes 
otherwise deemed appropriate

[[Page 5893]]

by the manager. In support of this exclusion, comments noted the burden 
of monitoring ownership changes in the investment entity for 
determining when to exclude the entity as a member of such a group, 
including the potential updating required for purposes of the group's 
FFI application with the IRS. In response to these comments, the final 
regulations modify the definition of expanded affiliated group to 
exclude from the group an investment entity owned by an FFI group 
member when the member's ownership exists solely to provide a seed 
capital investment in an entity. The final regulations describe the 
circumstances in which an investment qualifies for this treatment 
(including by defining seed capital) and prescribe a three-year period 
in which the investment entity is excluded from the group.
    Second, the final regulations incorporate an anti-abuse rule that 
disregards a change in ownership, voting rights, or the form of an 
entity with respect to an expanded affiliated group if the change is 
pursuant to a plan a principal purpose of which is to avoid withholding 
or reporting obligations under chapter 4.

VII. Comments and Changes to Section 1.1471-6--Payments Beneficially 
Owned by Exempt Beneficial Owners

    Proposed Sec.  1.1471-6 defined classes of entities that qualify as 
exempt beneficial owners for purposes of chapter 4. The final 
regulations expand the circumstances in which certain classes of 
entities qualify as exempt beneficial owners and modify when an entity 
qualifies as an exempt beneficial owner under Sec.  1.1471-6(g) 
(describing certain entities owned by only exempt beneficial owners). 
The final regulations also clarify that, except as provided in Sec.  
1.1471-6(f) (regarding retirement funds), an entity cannot qualify as 
an exempt beneficial owner unless it is the beneficial owner of the 
payment.
    To coordinate the final regulations' identification of specific 
entities as exempt beneficial owners with the IGAs, the definition of 
an exempt beneficial owner is expanded to include any entity identified 
as an exempt beneficial owner pursuant to an IGA. This change is 
incorporated into the definition of an exempt beneficial owner in Sec.  
1.1471-1(b)(38).
    Comments noted that limiting the definition of international 
organization to include only international organizations in which the 
United States participates as a member was unnecessary. In response to 
these comments, this definition has been expanded to allow an entity to 
qualify as an international organization if the entity: (1) is a 
supranational organization or intergovernmental organization recognized 
as an international organization under certain provisions of foreign 
law or that has in effect a headquarters agreement with a foreign 
government; and (2) prevents private inurement under the principles of 
Sec.  1.1471-6(b)(3)(ii).
    In response to comments, the final regulations broaden the classes 
of pension funds qualifying as exempt beneficial owners under Sec.  
1.1471-6(f) by including several new categories of pension funds, each 
of which applies without regard to whether the pension fund is the 
beneficial owner of income. Comments requested removal of the 
beneficial owner requirement because, depending on the jurisdiction, a 
fund may or may not be treated as the beneficial owner of income it 
receives under local law. Other comments were received regarding the 
interaction of the exemption for retirement plans in proposed Sec.  
1.1471-6(f) with those retirement plans afforded deemed compliant 
status in proposed Sec.  1.1471-5(f)(2)(ii) (which did not require the 
plan to be the beneficial owner and which included certain plans with 
fewer than twenty participants). In response to these comments, Sec.  
1.1471-5(f)(2)(ii) was removed and the types of retirement plans that 
may qualify as exempt beneficial owners under Sec.  1.1471-6(f) 
regardless of whether they are beneficial owners was expanded, as 
described below.
    In response to comments, the final regulations treat a fund 
entitled to benefits under an income tax treaty and operated 
principally to administer or provide pension or retirement benefits as 
an exempt beneficial owner regardless of whether the fund is generally 
exempt from taxation in the country in which it is organized.
    Regarding the general requirements for retirement funds included in 
proposed Sec.  1.1471-6(f), comments noted that many plans would fail 
to qualify under the rule requiring that all contributions to the plan, 
except for rollover contributions from other retirement funds, come 
from employer or employee contributions. Comments suggested alternative 
requirements to prevent funds from being abused for chapter 4 purposes, 
including annual information reporting, strict limitations on 
withdrawals or distributions from the fund, or penalties for early 
distributions. Additionally, comments noted that certain types of 
mandatory government plans may also fail the requirement in proposed 
Sec.  1.1471-6(f) that contributions be solely from employer or 
employee contributions. Comments also requested that funds that provide 
for disability or death benefits should not disqualify a retirement 
fund from being an exempt beneficial owner that would otherwise qualify 
under Sec.  1.1471-6(f).
    In response to these comments, the final regulations: (1) provide 
rules allowing for alternative sources of contributions apart from 
those from employers and employees; (2) provide anti-abuse provisions 
based on alternatives suggested in comments; and (3) allow, in 
appropriate circumstances, plans to provide disability or death 
benefits. In response to comments, the final regulations also broaden 
the treaty-qualified retirement fund category and add a new category 
for funds formed pursuant to pension plans that would meet the 
requirements of section 401(a), other than the requirement that the 
plan be funded by a trust created or organized in the United States.
    Comments also questioned whether the proposed regulations intended 
to exclude certain pension funds established by exempt beneficial 
owners, noting that the regulations under section 892 specifically 
include an exemption for certain pension funds established by foreign 
governments. The Treasury Department and the IRS generally intend for 
these types of pension funds to qualify as exempt beneficial owners. To 
eliminate the possibility that such plans might not so qualify in 
appropriate cases, the final regulations provide that pension funds 
meeting certain requirements (relating to retirement, disability, or 
death benefits) will qualify as exempt beneficial owners when 
established by another exempt beneficial owner for its employees, 
employees' beneficiaries, or other persons providing services to such 
funds.
    With respect to the allowance in proposed Sec.  1.1471-6(g) 
providing exempt beneficial owner status to certain entities wholly 
owned by exempt beneficial owners, comments noted that this provision 
did not contemplate structures in which entities are owned directly by 
other entities that would qualify as exempt beneficial owners under 
Sec.  1.1471-6(g). The final regulations are amended to clarify that 
exempt beneficial owner status under Sec.  1.1471-6(g) applies in such 
cases. The final regulations also clarify that receiving loans from 
depository institutions or issuing debt to other exempt beneficial 
owners will not prevent an entity from qualifying as an exempt 
beneficial owner under Sec.  1.1471-6(g).

[[Page 5894]]

    The final regulations provide in Sec.  1.1471-6(h) an exception to 
exempt beneficial owner status for foreign governments, international 
organizations, foreign central banks of issue, and the governments of 
U.S. territories that engage in certain commercial activities, 
replacing the prohibition in the proposed regulations on commercial 
activities that had applied only to foreign governments. Some comments 
noted that an entity would fail to qualify as an exempt beneficial 
owner under the commercial activities exception in the proposed 
regulations even when the entity accepts deposits or maintains 
financial accounts only for exempt beneficial owners (such as the 
members in an entity such as a development bank organized by certain 
foreign governments). The final regulations respond to these comments 
by providing a limitation on the commercial activities exception for 
activities for or on behalf of other exempt beneficial owners.

VIII. Section 1.1472-1--Withholding on NFFEs

    The regulations under section 1472 provide rules applicable to 
withholding agents for withholding on certain NFFEs and reporting with 
respect to the substantial U.S. owners of certain NFFEs.
    In response to comments requesting a transition period to 
accommodate the creation of associated systems, the final regulations 
provide that withholding agents are required to withhold under section 
1472 only with respect to withholdable payments made after December 31, 
2013. In addition, Sec.  1.1472-1(b)(2) provides that withholding 
agents are not required to withhold under section 1472 on payments made 
before January 1, 2015, with respect to a preexisting obligation to a 
payee that is not a prima facie FFI and for which a withholding agent 
does not have documentation indicating the payee's status as a passive 
NFFE with one or more substantial U.S. owners.
    The final regulations also clarify the interaction of section 1472 
withholding with a participating FFI's withholding obligations under 
section 1471(b) and the associated regulations. Under the final 
regulations, a participating FFI that complies with its withholding 
obligations under Sec.  1.1471-4(b) will be deemed to satisfy its 
obligations under section 1472 with respect to withholdable payments 
made to NFFEs that are account holders. Section 1472 will continue to 
apply to a participating FFI that acts as a withholding agent on a 
withholdable payment made to an NFFE that is not an account holder (for 
example, a payment with respect to a contract that does not constitute 
a financial account). These withholding obligations will be limited, 
however, by Sec.  1.1473-1(a)(4)(vi), which provides a temporary 
exception from the definition of withholdable payment for certain 
payments of U.S. source FDAP income made prior to January 1, 2017, with 
respect to offshore obligations.
    In response to comments, Sec.  1.1472-1(c)(1)(i)(B) clarifies the 
application of the publicly traded rules for excepted NFFE status in 
the year of an initial public offering.
    With regard to the exception from withholding for payments to 
active NFFEs, the Treasury Department and the IRS received comments 
requesting that passive income be defined by reference to section 
954(c). This comment was not adopted. The Treasury Department and the 
IRS believe that providing a specific list of items constituting 
passive income will provide more certainty for withholding agents and 
NFFEs. The final regulations do, however, clarify the scope of passive 
income, including the rules regarding commodities. In addition, in 
response to comments, the final regulations expand the exceptions to 
passive income in a number of respects. First, the final regulations in 
Sec.  1.1472-1(c)(1)(iv)(B) provide that passive income will not 
include dividends, interest, rents, and royalties received or accrued 
from a related person to the extent that they are properly allocable to 
income of the payor that is not passive income. Second, the final 
regulations provide an exception from passive income for certain income 
earned by dealers acting in the ordinary course of their trade or 
business.
    In addition, the final regulations provide expanded categories of 
excepted NFFEs to address the treatment of holding companies and 
similar entities that are part of and that support a group conducting 
an active trade or business. The final regulations also clarify that an 
entity will not be an active NFFE unless less than 50 percent of its 
gross income is from passive income and less than 50 percent of its 
assets are passive assets (that is, assets that produce or are held for 
the production of passive income), on a weighted average basis.
    Also, the requirements for reporting on substantial U.S. owners 
were moved to Sec.  1.1474-1(i)(2) in the final regulations to include 
these requirements with the other reporting requirements applicable to 
withholding agents.

IX. Changes and Comments to Sec.  1.1473-1--Section 1473 Definitions

A. Withholdable Payment

1. In General
    Comments noted that U.S. mutual funds that invest in foreign 
securities will pay dividends that are withholdable payments and, 
correspondingly, that gross proceeds from the sale of interests in such 
U.S. funds would be withholdable payments. Those comments requested 
that the definition of withholdable payment be amended such that U.S. 
fund dividends would be characterized based on the assets held by the 
fund and would be subject to withholding only to the extent provided 
under the foreign passthru payment rules otherwise applicable to 
participating FFIs to avoid creating a competitive imbalance.
    The final regulations provide temporary relief to U.S. stock and 
debt issuers, including U.S. funds, by delaying withholding on gross 
proceeds until 2017. Treasury and the IRS do not believe, however, that 
eliminating chapter 4 withholding on payments of dividends that 
constitute U.S. source FDAP income under chapter 3 advances the 
purposes of chapter 4. It is expected, however, that these issues will 
be alleviated in practice through the conclusion of IGAs.
    Comments also requested that the rules defining withholdable 
payment exclude payments that are reported by the withholding agent on 
Form 5471 or 5472 in order to alleviate duplicative reporting. The 
final regulations do not adopt this comment because the chapter 4 
withholding rules serve different purposes than the reporting regimes 
under sections 6038 and 6038A which underlie Forms 5471 and 5472.
2. Gross Proceeds
    Comments noted that clearing organizations pay or credit a member's 
account with the net amount of sales or dispositions that occurred 
throughout a given period. The final regulations allow clearing 
organizations to determine gross proceeds based on the net amount paid 
or credited to a member's account under the settlement procedures of 
such organization.
    In response to comments, the final regulations clarify that any 
contract that results in the payment of a dividend equivalent (as 
defined in section 871(m) and regulations thereunder) is treated as 
property of a type that can produce U.S. source FDAP income, including 
if such dividend equivalent is part of a termination payment.
    The final regulations also modify the definition of gross proceeds 
to exclude

[[Page 5895]]

proceeds from transactions not subject to recognition under section 
1058.
3. Exceptions to Withholdable Payment
a. Withholding on Offshore Payments of U.S. Source FDAP Income
    To coordinate the final regulations' withholding requirements with 
those of the Model 1 IGAs, the final regulations delay withholding on 
certain offshore payments of U.S. source FDAP income until January 1, 
2017. Specifically, the final regulations temporarily exclude from the 
definition of withholdable payment a payment of U.S. source FDAP income 
made with regard to an offshore obligation prior to January 1, 2017, by 
a person that is not acting as an intermediary with regard to the 
payment. For purposes of this exception, the final regulations 
expressly include a qualified securities lender as an intermediary. The 
final regulations also limit the application of this rule for certain 
flow-through entities.
b. Excluded Nonfinancial Payments
    Comments requested clarification and expansion of the proposed 
regulations' ordinary course of business exception to withholdable 
payments. In particular, comments requested that the definition of 
ordinary course of business payments be modified by striking the word 
``nonfinancial'' because it creates uncertainty as to whether services 
provided to a financial institution that are accounts payable type 
expenses are ordinary course of business payments. Comments also noted 
that the ordinary course of business exception imposed significant 
administrative burdens given the volume of cross-border payments that 
had to be identified and classified. In response to these comments, the 
final regulations replace the ordinary course of business exception 
with a more comprehensive exception for excluded nonfinancial payments. 
The revised exception provides greater certainty by explicitly 
describing payments that are excluded from withholdable payments and by 
providing a list of payments that are withholdable payments.
    The proposed regulations also provided that the exclusion for 
ordinary course of business payments included payments for the sale of 
goods. Commentators pointed out that such an exception implied that the 
sale of goods could give rise to U.S. source FDAP income. The final 
regulations remove the reference to ``goods'' in the nonfinancial 
payments exclusion and define a payment of U.S. source FDAP income to 
expressly incorporate the exclusion under Sec.  1.1441-2(b)(2)(i) 
(stating that certain gains from the sale of property do not constitute 
FDAP income).
4. Excise Tax under Section 4371
    Under the proposed regulations, withholdable payments include 
insurance and reinsurance premiums that are U.S. source FDAP income. 
Comments requested that the final regulations exclude insurance and 
reinsurance premiums from the definition of withholdable payment to the 
extent the premiums are subject to the excise tax under section 4371. 
Such premiums are exempt under chapter 3, however, because the excise 
tax under section 4371 is an adequate substitute for tax on the 
business income of a foreign issuer. In contrast, withholding under 
chapter 4 is intended as an incentive to FFIs to become participating 
FFIs, rather than as a proxy for the tax on the income of the issuer. 
As a result, the policy reasons for the exclusion of such insurance and 
reinsurance premiums for purposes of chapter 3 withholding are not 
relevant for chapter 4 withholding. The final regulations therefore do 
not adopt this comment.

B. Substantial U.S. Owner

    The final regulations include rules for determining whether a 
specified U.S. person is a substantial U.S. owner that remain 
substantially unchanged from the proposed regulations subject to the 
following modifications. The proposed regulations required that the 
determination of whether a person is a substantial U.S. owner be made 
by calculating such person's direct and indirect interest in the 
entity. The attribution rules under the proposed regulations required 
that a specified U.S person's indirect interest in an entity be 
determined by looking through interests held by entities that are U.S. 
persons. The final regulations do not require an entity to look through 
interests held by a U.S. person that is not a specified U.S. person 
when determining whether the entity has a substantial U.S. owner. The 
final regulations add a provision that requires an entity making a 
determination as to whether a specified U.S. person is a substantial 
U.S. owner to aggregate the interests owned by persons related to the 
specified U.S. person, applying certain provisions of the regulations 
under section 267 to determine whether such persons are related.
    In response to comments regarding the difficulty of determining 
whether a specified U.S. person owns a sufficient interest in an entity 
to be a substantial U.S. owner, the final regulations provide a safe 
harbor that permits an entity, or a withholding agent with respect to 
the entity, to treat a specified U.S. person as a substantial U.S. 
owner in lieu of making the calculations necessary to determine whether 
such person holds a sufficient interest to be a substantial U.S. owner.
    Comments requested that the 10 percent ownership threshold for 
determining a substantial U.S. owner be changed to 25 percent to align 
with AML due diligence requirements. These comments were not adopted. 
Jurisdictions have varying approaches to enforcing AML due diligence 
requirements, and thus, reliance on AML due diligence to determine 
substantial U.S. owners is more appropriate in the context of the IGAs.

C. Specified U.S. Person

    The final regulations add section 457(g) plans and exempt trusts 
under section 403(b) to the classes of U.S. persons that are not 
specified U.S. persons.

X. Comments and Changes to Sec.  1.1474-1--Liability for Withheld Tax 
and Withholding Agent Reporting

A. Use of Agents

    The proposed regulations described the circumstances under which a 
withholding agent could appoint agents to fulfill its obligations under 
chapter 4 and the withholding agent's liability. Comments requested 
removal of the proposed regulations' restrictions on the use of sub-
agents. The final regulations remove these restrictions and clarify 
that a withholding agent remains liable for the acts of both its agents 
and its agents' sub-agents. The final regulations also clarify that any 
agent or sub-agent that acts as a reporting agent for filing Form 1042 
or making deposits and payments reportable on the form on behalf of a 
withholding agent must file a Form 8655, ``Reporting Agent 
Authorization,'' with the IRS.

B. Information Reporting

    The proposed regulations set forth the information reporting 
requirements of a withholding agent paying a chapter 4 reportable 
amount and the transitional reporting requirements of a participating 
FFI or registered deemed-compliant FFI making a payment of a foreign 
reportable amount to a nonparticipating FFI. The proposed regulations 
also required financial institutions to file such returns 
electronically on magnetic media without regard to the general annual 
250 return threshold applicable to withholding agents other than 
financial institutions.

[[Page 5896]]

    The final regulations modify and clarify certain provisions of the 
proposed regulations with respect to these reporting requirements. The 
final regulations modify which persons are recipients for purposes of 
reporting chapter 4 reportable amounts and describe categories of 
recipients with respect to payments of U.S. source FDAP income. Due to 
the suspension of withholding on gross proceeds and foreign passthru 
payments until 2017, the definition of a recipient of a payment other 
than of U.S. source FDAP income is reserved. Information reporting is 
required with respect to a payment of gross proceeds only if the 
payment is an amount subject to withholding. In response to comments 
requesting clarification of the meaning of the term ``subject to 
withholding,'' the final regulations in Sec.  1.1471-1(b)(118) define 
an amount subject to withholding as an amount withheld upon or required 
to be withheld upon under chapter 4. The final regulations also clarify 
that a chapter 4 reportable amount excludes an amount paid to a payee 
that the withholding agent treats as a U.S. person, but add a provision 
that an amount paid by a withholding agent to a participating FFI or 
registered deemed-compliant FFI is reportable to the extent allocable 
to U.S. persons identified in a pool of payees reported by the FFI (as 
described in paragraph (d)(4)). The final regulations also generally 
describe how a withholding agent reports with respect to payments made 
to a participating FFI or registered deemed-compliant FFI that acts as 
an intermediary or flow-through entity when the FFI provides pooled 
information to the withholding agent regarding its account holders and 
payees subject to withholding under chapter 4. In the case of payments 
that are not subject to withholding under chapter 4, the final 
regulations require reporting to the extent that reporting is required 
under Sec.  1.1461-1.
    Comments sought clarification on the reporting obligations of a 
participating FFI or registered deemed-compliant FFI that acts as an 
intermediary or is a flow-through entity. The final regulations provide 
that if a payment of U.S. source FDAP income is made by a U.S. 
withholding agent to a participating FFI or registered deemed-compliant 
FFI that is an NQI, NWP, or NWT that provides sufficient information to 
the withholding agent to withhold and report the payment, the FFI is 
not also required to report the payment. The final regulations clarify, 
however, that a participating FFI or registered deemed compliant FFI is 
required to complete Forms 1042-S by allocating the income and 
withholding paid to its recalcitrant account holder pools as described 
in Sec.  1.1471-4(d)(6) (requiring a participating FFI to report the 
number of accounts and account balance information), and that such 
reporting is required regardless of whether the FFI made a payment of a 
chapter 4 reportable amount to each such account holder.
    Comments were also received regarding transitional reporting by 
participating FFIs and deemed-compliant FFIs for foreign reportable 
amounts paid to nonparticipating FFIs. Suggestions included permitting 
aggregate, in lieu of specific, payee reporting; modifying the 
definition of foreign reportable amount; and eliminating the 
transitional reporting altogether. Because the transitional reporting 
provides relevant information concerning the extent of compliance by 
FFIs with the requirements of chapter 4 in the absence of withholding 
with respect to foreign passthru payments, however, these comments are 
not adopted in the final regulations. The final regulations otherwise 
clarify that reporting during the transitional period is required for 
aggregate payments paid by a participating FFI rather than to a 
participating FFI.

XI. Comments and Changes to Sec. Sec.  1.1474-2 through -5--Refunds, 
Credits, and Reimbursement

    Proposed Sec. Sec.  1.1471-2 through -5 provide rules relating to 
the refund or credit of taxes withheld under chapter 4 and 
reimbursement procedures for withholding agents in cases of 
overwithholding. Comments requested the establishment of efficient 
procedures for beneficial owners to obtain refunds of tax withheld 
under chapter 4. In response to these comments, the final regulations 
provide the alternative allowance for participating FFIs and reporting 
Model 1 FFIs to obtain refunds on behalf of their account holders under 
the collective refund procedures of Sec.  1.1471-4(h). To facilitate 
the provision of refunds in other appropriate cases, the final 
regulations include in Sec.  1.1474-1(d) the allowance for a 
withholding agent to issue a specific Form 1042-S to an account holder 
subjected to withholding under chapter 4 (in lieu of the pooled 
reporting otherwise permitted) for purposes of substantiating 
withholding of amounts under chapter 4.

XII. Comments and Changes to Sec.  1.1474-6--Coordination of Chapter 4 
With Other Withholding Provisions

    Proposed Sec.  1.1474-6 provided rules for coordinating withholding 
under chapter 4 with other withholding provisions under the Code. The 
final regulations adopt the provisions of this section without 
substantial change, but add paragraph (b)(3) to permit a withholding 
agent to offset its obligation to withhold under chapter 4 with respect 
to payments of dividend equivalents under section 871(m) in a security 
lending or substantially similar transaction to the extent that another 
withholding agent has withheld under chapter 3 or 4 with respect to the 
same underlying security in such a transaction. This offset is 
permitted only when there is sufficient evidence that tax was actually 
withheld as determined under the provisions of chapter 3.

XIII. Comments and Changes to Sec.  301.1474-1--Required Use of 
Magnetic Media for Financial Institutions Filing Form 1042-S or Form 
8966

    Proposed Sec.  301.1474-1 requires that a financial institution 
file Forms 1042-S on magnetic media. The final regulations add a 
requirement that a financial institution also file Form 8966, ``FATCA 
Report,'' on magnetic media.

Procedural Matters

I. The FATCA Registration Portal

    The FATCA Registration Portal (Portal) will be the primary means 
for financial institutions to interact with the IRS to complete and 
maintain their chapter 4 registrations, agreements, and certifications. 
The Portal will be accessible to financial institutions beginning no 
later than July 15, 2013. At that time, financial institutions will be 
able to register and, as appropriate, agree to comply with their 
obligations as participating FFIs or as sponsoring entities (as 
described in section 3 below), or to register and agree to act as 
limited FFIs or registered deemed-compliant FFIs (including reporting 
Model 1 FFIs, which are treated as registered deemed-compliant FFIs 
under the final regulations). The IRS will permit registration of FFIs 
that are reporting Model 1 FFIs or described as a Reporting Financial 
Institution under a Model 2 IGA so long as the associated jurisdiction 
is identified on a list published by the IRS of countries treated as 
having in effect an IGA, as appropriate, even if any necessary 
ratification of such IGA in the jurisdiction has not yet been 
completed.

[[Page 5897]]

    Once a financial institution has registered, the IRS will approve 
its registration. The IRS intends, upon such approval, to issue a GIIN 
to each participating FFI and registered deemed-compliant FFI. These 
GIINs will be assigned beginning no later than October 15, 2013, and 
should be used as the institution's identifying number for satisfying 
its reporting requirements and identifying its status to withholding 
agents. The IRS will electronically post the first list (IRS FFI List) 
of participating FFIs and registered deemed-compliant FFIs (including 
reporting Model 1 FFIs) on December 2, 2013. The IRS intends to update 
the IRS FFI List on a monthly basis. The last date by which a financial 
institution can register with the IRS to ensure its inclusion on the 
December 2013 IRS FFI List is October 25, 2013.

A. The FFI Agreement

    A financial institution registering through the Portal will agree 
to comply with the FATCA requirements pertaining to its particular 
situation. These requirements will vary depending on the financial 
institution's status in the jurisdictions in which it operates. For 
example, an FFI may be a resident of a jurisdiction for which it 
reports as a reporting Model 1 FFI and have other branches in 
jurisdictions covered by applicable Model 2 IGAs and branches in 
jurisdictions not covered by an IGA. In such case, the FFI will be able 
to register once and may enter into an FFI agreement on behalf of its 
branches that are not covered under an applicable Model 1 IGA. 
Accordingly, the FFI agreement will not relate to its operations as a 
reporting Model 1 FFI because those operations will be subject to the 
rules set out under the law of the applicable jurisdiction, but the FFI 
agreement will incorporate the requirements applicable to its 
operations in jurisdictions other than those covered under an 
applicable Model 1 IGA.
    Before the Portal opens for registration, the Treasury Department 
and the IRS will publish a revenue procedure (FATCA Rev. Proc.) 
containing all the terms and conditions applicable to FFIs for chapter 
4 purposes and for FFIs also assuming chapter 3 responsibilities (that 
is, as QIs, WPs, and WTs). The terms and conditions set forth in the 
FATCA Rev. Proc. applicable to FFIs for chapter 4 purposes will be 
fully consistent with the rules set forth in these final regulations. 
The terms and conditions set forth in the FATCA Rev. Proc. applicable 
to FFIs that are assuming or continuing chapter 3 responsibilities are 
discussed in more detail in I.C and D of this section.

B. Sponsored FFIs

    As discussed in section VI.F above, the final regulations include 
three deemed-compliant categories for sponsored FFIs, under which a 
sponsoring entity agrees to register with the IRS and undertake all of 
the chapter 4 obligations of a participating FFI on behalf of one or 
more sponsored FFIs. Beginning no later than July 15, 2013, financial 
institutions will be able to register as sponsoring entities but will 
not at that time be required to provide information regarding their 
sponsored FFIs. It is anticipated that sponsoring entities will be able 
to provide sponsored FFI information and obtain GIINs for each 
sponsored FFI beginning no later than October 15, 2013.
    If a sponsoring entity must also become a participating FFI or 
registered deemed-compliant FFI with respect to accounts that it 
maintains or register as a reporting Model 1 FFI, the sponsoring entity 
will be required to do so separately from its registration as a 
sponsoring entity. Such an FFI will obtain a separate GIIN to be used 
with respect to its own chapter 4 or FATCA Partner reporting 
requirements and to establish its own chapter 4 status to withholding 
agents.

C. Qualified Intermediaries

    Beginning January 1, 2014, QIs will be required to assume chapter 4 
responsibilities with respect to their accounts as a condition for 
maintaining QI status or for obtaining QI status. For this purpose, 
existing QI agreements will be modified to take into account the 
applicable chapter 4 requirements. The modified provisions of the QI 
agreement will be set forth in the FATCA Rev. Proc. that the IRS will 
publish before the Portal opens for registration.
    Existing QIs will be required to renew their QI agreements by 
registering on the Portal and agreeing to comply with the modified QI 
agreement described in the FATCA Rev. Proc. Such a renewing QI will be 
issued a GIIN that it will use for FATCA reporting purposes and 
establishing its FATCA status with withholding agents. The IRS 
currently contemplates that the GIIN will also be used by QIs, in lieu 
of the current QI EIN, for purposes of QI reporting and establishing QI 
status vis-[agrave]-vis withholding agents.
    FFIs that wish to apply for QI status for the first time must do so 
under the existing paper-based QI application process. Once approved as 
a QI through this process, the FFI must also register or update its 
information regarding its QI status (including its chapter 4 
requirements) through the Portal.

D. Withholding Foreign Partnerships and Withholding Foreign Trusts

    The existing agreements governing WPs and WTs will also be modified 
to incorporate the applicable chapter 4 requirements of these entities 
(for financial accounts other than equity interests) with respect to 
their partners, owners and beneficiaries. The FATCA Rev. Proc. will 
describe these modifications.
    Existing WPs and WTs that are FFIs will be required to renew their 
agreements by registering on the Portal and agreeing to comply with the 
modified agreement described in the FATCA Rev. Proc. Such a renewing WP 
or WT will be issued a GIIN that it will use for FATCA reporting 
purposes and establishing its FATCA status with withholding agents. The 
IRS currently contemplates that the GIIN will also be used by WPs and 
WTs, in lieu of the current WP EIN or WT EIN, for purposes of chapter 3 
reporting and establishing its status vis-[agrave]-vis withholding 
agents.
    FFIs that wish to apply for WP or WT status for the first time must 
do so under the existing paper-based application process. Once approved 
as a WP or WT through this process, the FFI must also register or 
update its information regarding its WP or WT status through the 
Portal. A foreign entity other than an FFI will be required to apply as 
a WP or WT or renew its status as such for assuming its chapter 4 
requirements under the existing paper-based application process.

E. Foreign Branches of U.S. Financial Institutions

    U.S. financial institutions will register their foreign branch 
operations through the Portal in certain circumstances. A U.S. 
financial institution with a foreign branch that is a reporting Model 1 
FFI must register on behalf of the branch and obtain a GIIN to comply 
with its FATCA Partner reporting obligations with respect to such 
branch. A U.S. financial institution with a foreign branch that is a QI 
and seeks to maintain QI status will register through the Portal to 
renew its QI status for the branch regardless of whether the branch is 
a reporting Model 1 FFI. A U.S. financial institution with non-QI 
branch operations in a Model 2 jurisdiction or in a non-IGA 
jurisdiction is not required to register with the IRS. The Treasury 
Department and the IRS are considering ways to eliminate duplicative 
reporting or effect, as appropriate, uniform reporting under chapters 4 
and 61.

[[Page 5898]]

II. Future Guidance and Request for Comments

A. Qualified Intermediaries

    The Treasury Department and the IRS are considering revising the 
requirements of the QI agreement for external audit procedures to 
verify a QI's compliance with its QI agreement. Comments are requested 
regarding the merits of requiring QIs to provide, in lieu of external 
audit reports, periodic certifications of compliance similar to that 
required of participating FFIs under the final regulations. Comments 
are also requested as to the cases in which internal audits and reviews 
by third-parties should be required or permitted in lieu of external 
audits, including the extent to which such reviews should include 
evaluations of a QI's internal controls in lieu (in whole or in part) 
of the account review procedures prescribed in Revenue Procedure 2002-
55.

B. Private Arrangement Intermediaries

    The Treasury Department and the IRS anticipate issuing guidance to 
allow participating FFIs and registered-deemed compliant FFIs currently 
acting as private arrangement intermediaries (PAIs) to continue to act 
as PAIs for FATCA purposes under requirements similar to those 
specified in the current model QI agreement. Further, the QI agreement 
will be modified in the FATCA Rev. Proc. to incorporate the requirement 
that a QI may only contract with a PAI that is a participating FFI or 
registered-deemed compliant FFI (in addition to the chapter 3 
requirements for PAIs). As under the existing procedures applicable to 
PAIs, PAIs will not be required to separately register with the IRS to 
obtain PAI status (other than registering for chapter 4 purposes). QIs 
that contract with PAIs for purposes of their QI agreement will be 
required to identify these PAIs as part of the Portal registration 
process described above. As part of the revised requirements for PAIs, 
the Treasury Department and the IRS anticipate amending the external 
audit requirements of PAIs to provide requirements comparable to those 
required of QIs.

C. Coordination With Chapters 3 and 61

    The Treasury Department and the IRS intend: (1) to issue guidance 
coordinating chapters 3 and 61 with chapter 4, in order to reduce or 
eliminate duplicative reporting as between chapter 4 (and reporting 
pursuant to a Model 1 IGA) and chapters 3 and 61; and (2) to conform, 
as appropriate, the withholding, payee identification, and other due 
diligence rules of chapters 3 and 61 with rules under chapter 4. 
Comments are requested regarding how such coordination should be 
undertaken and whether other chapter 4 rules should be coordinated with 
other Code provisions.

D. Forms

    A number of new and revised IRS forms must be issued due to the new 
certification, reporting, and withholding requirements of chapter 4.
    For purposes of obtaining certifications of account holder status 
for chapter 3 purposes, withholding agents have relied on IRS forms in 
the ``W-8'' series. The forms in the W-8 series will be modified for 
chapter 4 purposes. It should be noted, however, that the regulations 
provide that a financial institution, depending on the circumstances, 
may also rely on substitute forms, written certifications, and other 
documentation.
    The IRS has already released draft versions of a revised Form W-
8IMY, ``Certificate of Foreign Intermediary, Foreign Flow-Through 
Entity, or Certain U.S. Branches for United States Tax Withholding,'' a 
revised Form W-8ECI ``Certificate of Foreign Person's Claim That Income 
Is Effectively Connected With the Conduct of a Trade or Business in the 
United States,'' and a revised Form W-8EXP ``Certificate of Foreign 
Government or Other Foreign Organization for United States Tax 
Withholding.'' The IRS intends to release shortly a new Form W-8BEN-E, 
``Certificate of Status for Beneficial Owner for United States Tax 
Withholding (Entities),'' to be used only by beneficial owners that are 
entities and, shortly thereafter, a draft version of a revised Form W-
8BEN, ``Certificate of Foreign Status of Beneficial Owner for United 
States Tax Withholding,'' to be used only by beneficial owners that are 
individuals.
    The IRS also intends to release shortly a new Form 8966, ``FATCA 
Report,'' that will be used by FFIs (including QIs, WPs, WTs) and 
withholding agents (in limited circumstances) to comply with their 
chapter 4 reporting obligations. This new Form 8966 will set forth all 
the information that must be reported with respect to financial 
accounts in accordance with these regulations. Finally, the IRS intends 
to issue shortly a revised Form 1042, ``Annual Withholding Tax Return 
for U.S. Source Income of Foreign Persons,'' and Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding.'' Revised Forms 
1042 and 1042-S will set forth all the information that must be 
reported by withholding agents to meet their obligations under both 
Sec.  1.1474-1(c) and (d) (chapter 4) and Sec.  1.1461-1 (chapter 3). 
The IRS intends to publish later in 2013 or in early 2014 final 
versions of Form 8966 and Form 1042-S, together with the XML-based 
schemas to be used by withholding agents for the electronic filing of 
these forms.

Effect on Other Documents

    The following publications are obsolete as of January 28, 2013.

Notice 2010-60, 2010-37 I.R.B. 329
Notice 2011-34, 2011-19 I.R.B. 765
Notice 2011-53, 2011-32 I.R.B. 124
Announcement 2012-42, 2012-47 I.R.B. 561

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13653. Therefore, a regulatory 
assessment is not required. It also has been determined that sections 
553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 6) 
do not apply to these regulations.
    The collection of information in these final regulations is 
contained in a number of provisions including Sec. Sec.  1.1471-2, 
1.1471-3, 1.1471-4, 1.1472-1, and 1.1474-1. The IRS intends that these 
information collection requirements will be satisfied by persons 
complying with revised chapter 3 reporting forms, new reporting forms 
based on these final regulations, the terms, conditions, and 
requirements of an FFI agreement, a QI agreement, a WP agreement, or a 
WT agreement that satisfies the requirements of an applicable revenue 
procedure to be issued by the IRS, or the alternative certification and 
documentation requirements set out in these final regulations. As a 
result, for purposes of the Paperwork Reduction Act (44 U.S.C. 3507), 
the reporting burden associated with the collection of information in 
these final regulations will be reflected in the respective OMB Form 
83-1, Paperwork Reduction Act Submission, associated with new or 
revised IRS forms, the revenue procedure relating to the FFI, QI, WP, 
and WT agreements, and the alternative certification and documentation 
requirements of these final regulations.
    It is hereby certified that the collection of information in these 
final regulations will not have a significant economic impact on a 
substantial number of small entities within the meaning of section 
601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). Although 
the Treasury Department and the IRS anticipate that

[[Page 5899]]

a substantial number of domestic small entities will be affected by the 
collection of information in these final regulations, the Treasury 
Department and the IRS believe that the economic impact to these 
entities resulting from the information collection requirements will 
not be significant.
    The domestic small business entities that are subject to chapter 4 
and these regulations are those domestic business entities that are 
payors of U.S. source FDAP income that are presently subject to the 
information collection and reporting rules under chapter 3. These 
domestic small business entities are required to be familiar with 
chapter 3's information collection and reporting rules and forms in 
order to determine a payee's U.S. withholding status and, based on that 
status, withhold and remit the proper amount of tax on payments of U.S. 
source FDAP income. Small domestic business entities that are payors of 
U.S. source FDAP income have developed and implemented internal 
reporting and information collection systems under which the business 
entity satisfies its chapter 3 payee identification, withholding, and 
tax remittance requirements.
    The IRS intends to revise the present chapter 3 reporting forms, 
with the revised forms being used by a payor of U.S. source FDAP income 
to satisfy the payor's obligations under chapters 3 and 4. As a result, 
these final regulations' information collection requirements build on 
reporting and information collection systems familiar to and currently 
used by payors of U.S. source FDAP income that are domestic small 
business entities, thereby reducing the burden imposed on these 
entities. In addition, the final regulations' alternative certification 
and documentation provisions reduce the information otherwise required 
to be collected by withholding agents and submitted by payees, thereby 
further limiting the burden imposed by the final regulations on 
domestic small business entities. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act is not required.
    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4, requires that an agency prepare a costs and benefits analysis 
and a budgetary impact statement before promulgating a rule that may 
result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year. If a budgetary impact statement is required, section 205 of 
the Unfunded Mandates Reform Act requires an agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule. The Treasury Department and the IRS have 
determined that there is no federal mandate imposed by this rulemaking 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.
    Pursuant to section 7805(f), 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. No comments were received from the Small 
Business Administration.

Drafting Information

    The principal authors of Sec. Sec.  1.1471-1 through 1.1474-7 are 
John Sweeney, Danielle Nishida, Tara Ferris, Quyen Huynh, Josephine 
Firehock, and Susan Massey, all of the Office of Associate Chief 
Counsel (International). The principal author of Sec.  301.1474-1 is 
Michael E. Hara, Office of Associate Chief Counsel (Procedure and 
Administration). However, other personnel from the IRS and the Treasury 
Department participated in the development of these regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
Taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.1471-1 is also issued under 26 U.S.C. 1471
    Section 1.1471-2 is also issued under 26 U.S.C. 1471
    Section 1.1471-3 is also issued under 26 U.S.C. 1471
    Section 1.1471-4 is also issued under 26 U.S.C. 1471
    Section 1.1471-5 is also issued under 26 U.S.C. 1471
    Section 1.1471-6 is also issued under 26 U.S.C. 1471
    Section 1.1472-1 is also issued under 26 U.S.C. 1472
    Section 1.1473-1 is also issued under 26 U.S.C. 1473
    Section 1.1474-1 is also issued under 26 U.S.C. 1474
    Section 1.1474-2 is also issued under 26 U.S.C. 1474
    Section 1.1474-3 is also issued under 26 U.S.C. 1474
    Section 1.1474-4 is also issued under 26 U.S.C. 1474
    Section 1.1474-5 is also issued under 26 U.S.C. 1474
    Section 1.1474-6 is also issued under 26 U.S.C. 1474
    Section 1.1474-7 is also issued under 26 U.S.C. 1474 * * *


0
Par. 2. The undesignated center heading and subheading immediately 
following Sec.  1.1464-1 are removed.


0
Par. 3. Section 1.1471-1 and the editorial note that follows are 
removed.


0
Par. 4. A new undesignated center heading and Sec.  1.1471-0 are added 
immediately following Sec.  1.1464-1 to read as follows:

Information Reporting by Foreign Financial Institutions


Sec.  1.1471-0  Outline of regulation provisions for sections 1471 
through 1474.

    This section lists the table of contents for Sec. Sec.  1.1471-1 
through 1.1474-7 and Sec.  301.1474-1 of this chapter.

Sec.  1.1471-1 Scope of chapter 4 and definitions.

    (a) Scope of chapter 4 of the Internal Revenue Code.
    (b) Definitions.
    (1) Account.
    (2) Account holder.
    (3) Active NFFE.
    (4) AML due diligence.
    (5) Annuity contract.
    (6) Assumes primary withholding responsibility.
    (7) Beneficial owner.
    (8) Blocked account.
    (9) Broker.
    (10) Cash value.
    (11) Cash value insurance contract.
    (12) Certified deemed-compliant FFI.
    (13) Change in circumstances.
    (14) Chapter 3.
    (15) Chapter 4.
    (16) Chapter 4 reportable amount.
    (17) Chapter 4 status.
    (18) Clearing organization.
    (19) Complex trust.
    (20) Consolidated obligations.
    (21) Custodial account.
    (22) Custodial institution.
    (23) Customer master file.
    (24) Deemed-compliant FFI.
    (25) Deferred annuity contract.
    (26) Depository account.
    (27) Depository institution.
    (28) Documentary evidence.
    (29) Documentation.
    (30) Dormant account.
    (31) Effective date of the FFI agreement.
    (32) EIN.

[[Page 5900]]

    (33) Election to be withheld upon.
    (34) Electronically searchable information.
    (35) Entity.
    (36) Entity account.
    (37) Excepted NFFE.
    (38) Exempt beneficial owner.
    (39) Expanded affiliated group.
    (40) FATF.
    (41) FATF-compliant jurisdiction.
    (42) FFI.
    (43) FFI agreement.
    (44) Financial account.
    (45) Financial institution.
    (46) Flow-through entity.
    (47) Flow-through withholding certificate.
    (48) Foreign entity.
    (49) Foreign passthru payment.
    (50) Foreign payee.
    (51) Foreign person.
    (52) GIIN.
    (53) Grandfathered obligation.
    (54) Grantor trust.
    (55) Gross proceeds.
    (56) Group annuity contract.
    (57) Group insurance contract.
    (58) Immediate annuity.
    (59) Individual account.
    (60) Insurance company.
    (61) Insurance contract.
    (62) Intermediary.
    (63) Intermediary withholding certificate.
    (64) Investment entity.
    (65) Investment-linked annuity contract.
    (66) Investment-linked insurance contract.
    (67) IRS FFI list.
    (68) Life annuity contract.
    (69) Life insurance contract.
    (70) Limited branch.
    (71) Limited FFI.
    (72) Model 1 IGA.
    (73) Model 2 IGA.
    (74) NFFE.
    (75) Nonparticipating FFI.
    (76) Nonreporting IGA FFI.
    (77) Non-U.S. account.
    (78) NQI.
    (79) NWP.
    (80) NWT.
    (81) Offshore account.
    (82) Offshore obligation.
    (83) Owner.
    (84) Owner-documented FFI.
    (85) Participating FFI.
    (86) Participating FFI group.
    (87) Partnership.
    (88) Passive NFFE.
    (89) Passthru payment.
    (90) Payee.
    (91) Payment with respect to an offshore obligation.
    (92) Payor.
    (93) Permanent residence address.
    (94) Person.
    (95) Preexisting account.
    (96) Preexisting entity account.
    (97) Preexisting individual account.
    (98) Preexisting obligation.
    (99) Pre-FATCA Form W-8.
    (100) Prima facie FFI.
    (101) QI.
    (102) QI agreement.
    (103) QI branch of a U.S. financial institution.
    (104) Recalcitrant account holder.
    (105) Registered deemed-compliant FFI.
    (106) Relationship manager.
    (107) Reporting Model 1 FFI.
    (108) Responsible officer.
    (109) Restricted distributor.
    (110) Simple trust.
    (111) Specified insurance company.
    (112) Specified U.S. person.
    (113) Sponsored FFI.
    (114) Sponsored FFI group.
    (115) Sponsoring entity.
    (116) Standardized industry code.
    (117) Standing instructions to pay amounts.
    (118) Subject to withholding.
    (119) Substantial U.S. owner.
    (120) Territory entity.
    (121) Territory financial institution.
    (122) Territory financial institution treated as a U.S. person.
    (123) Territory NFFE.
    (124) TIN.
    (125) U.S. account.
    (126) U.S. branch treated as a U.S. person.
    (127) U.S. financial institution.
    (128) U.S. indicia.
    (129) U.S. owned foreign entity.
    (130) U.S. payee.
    (131) U.S. payor.
    (132) U.S. person.
    (133) U.S. source FDAP income.
    (134) U.S. territory.
    (135) U.S. withholding agent.
    (136) Withholdable payment.
    (137) Withholding.
    (138) Withholding agent.
    (139) Withholding certificate.
    (140) WP.
    (141) Written statement.
    (142) WT.
    (c) Effective/applicability date.

Sec.  1.1471-2 Requirement to deduct and withhold tax on 
withholdable payments to certain FFIs.

    (a) Requirement to withhold on payments to FFIs.
    (1) General rule of withholding.
    (2) Special withholding rules.
    (i) Requirement to withhold on payments of U.S. source FDAP 
income to participating FFIs that are NQIs, NWPs, or NWTs.
    (ii) Residual withholding responsibility of intermediaries and 
flow-through entities.
    (iii) Requirement to withhold if a participating FFI or 
registered deemed-compliant FFI makes an election to be withheld 
upon.
    (A) Election to be withheld upon for U.S. source FDAP income.
    (B) Election to be withheld upon for gross proceeds.
    (iv) Withholding obligation of a territory financial 
institution.
    (v) Withholding obligation of a foreign branch of a U.S. 
financial institution.
    (vi) Payments of gross proceeds.
    (3) Coordination of withholding under sections 1471(a) and (b).
    (4) Payments for which no withholding is required.
    (i) Exception to withholding if the withholding agent lacks 
control, custody, or knowledge.
    (A) In general.
    (B) Example.
    (ii) Exception to withholding for certain payments made prior to 
January 1, 2016 (transitional).
    (A) In general.
    (B) Prima facie FFIs.
    (iii) Payments to a participating FFI.
    (iv) Payments to a deemed-compliant FFI.
    (v) Payments to an exempt beneficial owner.
    (vi) Payments to a territory financial institution.
    (vii) Payments to an account held with a clearing organization 
with FATCA-compliant membership.
    (viii) Payments to certain excepted accounts.
    (5) Withholding requirements if source or character of payments 
is unknown.
    (i) General rule.
    (ii) Optional escrow procedure.
    (b) Grandfathered obligations.
    (1) Grandfathered treatment of outstanding obligations.
    (2) Definitions.
    (i) Grandfathered obligation.
    (ii) Obligation.
    (iii) Date outstanding.
    (iv) Material modification.
    (3) Application to flow-through entities.
    (i) Partnerships.
    (ii) Simple trusts.
    (iii) Grantor trusts.
    (4) Determination by withholding agent of grandfathered 
treatment.
    (i) In general.
    (ii) Determination of material modification.
    (iii) Record retention.
    (c) Effective/applicability date.

Sec.  1.1471-3 Identification of payee.

    (a) Payee defined.
    (1) In general.
    (2) Payee with respect to a financial account.
    (3) Exceptions.
    (i) Certain foreign agents or intermediaries.
    (ii) Foreign flow-through entity.
    (iii) U.S. intermediary or agent of a foreign person.
    (iv) Territory financial institution.
    (v) Disregarded entity or branch.
    (vi) U.S. branch of certain foreign banks or foreign insurance 
companies.
    (vii) Foreign branch of a U.S. person.
    (b) Determination of payee's status.
    (1) Determining whether a payment is received by an 
intermediary.
    (2) Determination of entity type.
    (3) Determination of whether the payment is made to a QI, WP, or 
WT.
    (4) Determination of whether the payee is receiving effectively 
connected income.
    (c) Rules for reliably associating a payment with a withholding 
certificate or other appropriate documentation.
    (1) In general.
    (2) Reliably associating a payment with documentation if a 
payment is made through an intermediary or flow-through entity that 
is not the payee.
    (i) In general.
    (ii) Exception to entity account documentation rules for an 
offshore account of an intermediary or flow-through entity.
    (3) Requirements for validity of certificates.
    (i) Form W-9.
    (ii) Beneficial owner withholding certificate (Form W-8BEN).
    (iii) Withholding certificate of an intermediary, flow-through 
entity, or U.S. branch (Form W-8IMY).

[[Page 5901]]

    (A) In general.
    (B) Withholding statement.
    (1) In general.
    (2) Special requirements for an FFI withholding statement.
    (3) Special requirements for a chapter 4 withholding statement.
    (4) Special requirements for an exempt beneficial owner 
withholding statement.
    (C) Failure to provide allocation information.
    (D) Special rules applicable to a withholding certificate of a 
QI that assumes primary withholding responsibility under chapter 3.
    (E) Special rules applicable to a withholding certificate of a 
QI that does not assume primary withholding responsibility under 
chapter 3.
    (F) Special rules applicable to a withholding certificate of a 
territory financial institution that agrees to be treated as a U.S. 
person.
    (G) Special rules applicable to a withholding certificate of a 
territory financial institution that does not agree to be treated as 
a U.S. person.
    (H) Special rules applicable to a withholding certificate of a 
U.S. branch treated as a U.S. person.
    (iv) Certificate for exempt status (Form W-8EXP).
    (v) Certificate for effectively connected income (Form W-8ECI).
    (4) Requirements for written statements.
    (5) Requirements for documentary evidence.
    (i) Foreign status.
    (A) Certificate of residence.
    (B) Individual government identification.
    (C) QI documentation.
    (D) Entity government documentation.
    (E) Third-party credit report.
    (ii) Chapter 4 status.
    (A) General documentary evidence.
    (B) Preexisting account documentary evidence.
    (C) Payee-specific documentary evidence.
    (6) Applicable rules for withholding certificates, written 
statements, and documentary evidence.
    (i) Who may sign the withholding certificate or written 
statement.
    (ii) Period of validity.
    (A) General rule.
    (B) Indefinite validity.
    (C) Indefinite validity in the case of certain offshore 
obligations.
    (D) Exception for certificate for effectively connected income.
    (E) Change in circumstances.
    (1) Defined.
    (2) Obligation to notify withholding agent of a change in 
circumstances.
    (3) Withholding agent's obligation with respect to a change in 
circumstances.
    (iii) Record retention.
    (A) In general.
    (B) Exception for documentary evidence received with respect to 
offshore obligations.
    (iv) Electronic transmission of withholding certificate, written 
statement, and documentary evidence.
    (v) Acceptable substitute withholding certificate.
    (A) In general.
    (B) Non-IRS form for individuals.
    (vi) Electronic confirmation of TIN on withholding certificate.
    (vii) Reliance on a prior version of a withholding certificate.
    (7) Curing documentation errors.
    (i) Curing inconsequential errors on a withholding certificate.
    (ii) Documentation received after the time of payment.
    (8) Documentation furnished on account-by-account basis unless 
exception provided for sharing documentation within expanded 
affiliated group.
    (i) Single branch systems.
    (ii) Universal account systems.
    (iii) Shared account systems.
    (iv) Document sharing gross proceeds.
    (9) Reliance on documentation collected by or certifications 
provided by other persons.
    (i) Shared documentation system maintained by an agent.
    (ii) Third-party data providers.
    (iii) Reliance on certification provided by introducing brokers.
    (iv) Reliance on documentation and certifications provided 
between principals and agents.
    (A) In general.
    (B) Reliance upon certification of the principal.
    (C) Document sharing.
    (D) Examples.
    (v) Reliance upon documentation for accounts acquired in merger 
or bulk acquisition for value.
    (d) Documentation requirements to establish payee's chapter 4 
status.
    (1) Reliance on pre-FATCA Form W-8.
    (2) Identification of U.S. persons.
    (i) In general.
    (ii) Reliance on documentary evidence.
    (iii) Preexisting obligations.
    (3) Identification of individuals that are foreign persons.
    (i) In general.
    (ii) Exception for offshore obligations.
    (4) Identification of participating FFIs and registered deemed-
complaint FFIs.
    (i) In general.
    (ii) Exception for payments made prior to January 1, 2017, with 
respect to preexisting obligations (transitional).
    (iii) Exception for offshore obligations.
    (iv) Exceptions for payments to reporting Model 1 FFIs.
    (v) Reason to know.
    (5) Identification of certified deemed-compliant FFIs.
    (i) In general.
    (ii) Sponsored, closely-held investment vehicles.
    (A) In general.
    (B) Offshore obligations.
    (6) Identification of owner-documented FFIs.
    (i) In general.
    (ii) Auditor's letter substitute.
    (iii) Documentation for owners of payee.
    (iv) Content of FFI owner reporting statement.
    (v) Exception for preexisting obligations (transitional).
    (vi) Exception for offshore obligations.
    (vii) Exception for certain obligations of $1,000,000 or less.
    (7) Nonreporting IGA FFIs.
    (i) In general.
    (ii) Exception for offshore obligations.
    (8) Identification of nonparticipating FFIs.
    (i) In general.
    (ii) Special documentation rules for payments made to an exempt 
beneficial owner through a nonparticipating FFI.
    (9) Identification of exempt beneficial owners.
    (i) Identification of foreign governments, governments of U.S. 
territories, international organizations, and foreign central banks 
of issue.
    (A) In general.
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations.
    (ii) Identification of retirement funds.
    (A) In general.
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations.
    (iii) Identification of entities wholly owned by exempt 
beneficial owners.
    (10) Identification of territory financial institutions.
    (i) Identification of territory financial institutions that are 
beneficial owners.
    (A) In general.
    (B) Exception for preexisting offshore obligations.
    (ii) Identification of territory financial institutions acting 
as intermediaries or that are flow-through entities.
    (iii) Reason to know.
    (11) Identification of excepted NFFEs.
    (i) Identification of excepted nonfinancial group entities.
    (A) In general.
    (B) Exception for offshore obligations.
    (ii) Identification of excepted nonfinancial start-up companies.
    (A) In general.
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations.
    (iii) Identification of excepted nonfinancial entities in 
liquidation or bankruptcy.
    (A) In general.
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations.
    (iv) Identification of section 501(c) organizations.
    (A) In general.
    (B) Reason to know.
    (v) Identification of non-profit organizations.
    (A) In general.
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations.
    (D) Reason to know.
    (vi) Identification of NFFEs that are publicly traded 
corporations.
    (A) Exception for offshore obligations.
    (B) Exception for preexisting offshore obligations.
    (vii) Identification of NFFE affiliates.
    (A) Exception for offshore obligations.
    (B) Exception for preexisting offshore obligations.
    (viii) Identification of excepted territory NFFEs.
    (A) Exception for payments made prior to January 1, 2017, with 
respect to preexisting

[[Page 5902]]

obligations of $1,000,000 or less (transitional).
    (B) Exception for offshore obligations.
    (C) Exception for preexisting offshore obligations of $1,000,000 
or less.
    (ix) Identification of active NFFEs.
    (A) Exception for offshore obligations.
    (B) Exception for preexisting offshore obligations.
    (C) Limit on reason to know.
    (12) Identification of passive NFFEs.
    (i) Exception for offshore obligations.
    (ii) Special rule for preexisting offshore obligations.
    (iii) Required owner certification for passive NFFEs.
    (A) In general.
    (B) Exception for preexisting obligations of $1,000,000 or less 
(transitional).
    (e) Standards of knowledge.
    (1) In general.
    (2) Notification by the IRS.
    (3) Participating FFIs and registered deemed-compliant FFIs.
    (i) In general.
    (ii) Special rules for reporting Model 1 FFIs.
    (4) Reason to know.
    (i) Information conflicting with person's claim of chapter 4 
status.
    (ii) Specific standards of knowledge applicable to withholding 
certificates.
    (A) In general.
    (B) Classification of U.S. status, U.S. address, or U.S. 
telephone number.
    (1) Presumption of individual's foreign status.
    (2) Presumption of entity's foreign status.
    (C) U.S. place of birth.
    (1) Accounts opened on or after January 1, 2014.
    (2) Preexisting obligations.
    (D) Standing instructions with respect to offshore obligations.
    (iii) Specific standard of knowledge applicable to written 
statements.
    (iv) Specific standard of knowledge applicable to documentary 
evidence.
    (A) In general.
    (B) Classification of U.S. status, U.S. address, or U.S. 
telephone number.
    (1) Presumption of individual's foreign status.
    (2) Presumption of entity's foreign status.
    (C) U.S. place of birth.
    (1) Accounts opened on or after January 1, 2014.
    (2) Preexisting obligations.
    (D) Standing instructions.
    (E) Standards of knowledge applicable to certain types of 
documentary evidence.
    (1) Financial statement.
    (2) Organizational documents.
    (v) Specific standards of knowledge applicable when only 
documentary evidence is a code or classification described in 
paragraph (c)(5)(ii)(B) of this section.
    (A) U.S. indicia for entities.
    (B) Documentation required to cure U.S. indicia.
    (vi) Specific standards of knowledge applicable to documentation 
received from intermediaries and flow-through entities.
    (A) In general.
    (B) Limits on reason to know with respect to documentation 
received from participating FFIs and registered deemed-compliant 
FFIs that are intermediaries or flow-through entities.
    (vii) Limits on reason to know.
    (A) Scope of review for preexisting obligations of entities.
    (B) Reason to know there is a U.S. telephone number associated 
with a preexisting obligation.
    (C) Reason to know there are U.S. indicia associated with 
preexisting offshore obligations.
    (D) Limits on reason to know for multiple obligations belonging 
to a single account holder.
    (viii) Reasonable explanation supporting claim of foreign 
status.
    (5) Conduit financing arrangements.
    (6) Additional guidance.
    (f) Presumptions regarding chapter 4 status of the person 
receiving the payment in the absence of documentation.
    (1) In general.
    (2) Presumptions of classification as an individual or entity.
    (i) In general.
    (ii) Documentary evidence furnished for offshore obligation.
    (3) Presumptions of U.S. or foreign status.
    (i) Payments to entities with indicia of foreign status.
    (ii) Payments to certain exempt recipients.
    (iii) Payments with respect to offshore obligations.
    (4) Presumption of chapter 4 status for a foreign entity.
    (5) Presumption of status as an intermediary.
    (6) Presumption of effectively connected income for payments to 
certain U.S. branches.
    (7) Joint payees.
    (i) In general.
    (ii) Exception for offshore obligations.
    (8) Rebuttal of presumptions.
    (9) Effect of reliance on presumptions and of actual knowledge 
or reason to know otherwise.
    (i) In general.
    (ii) Actual knowledge or reason to know that amount of 
withholding is greater than is required under the presumptions or 
that reporting of the payment is required.
    (g) Effective/applicability date.
Sec.  1.1471-4 FFI agreement.
    (a) In general.
    (1) Withholding.
    (2) Identification and documentation of account holders.
    (3) Reporting.
    (4) Expanded affiliated group.
    (5) Verification.
    (6) Event of default.
    (7) Refunds.
    (b) Withholding requirements.
    (1) In general.
    (2) Withholding determination.
    (3) Satisfaction of withholding requirements.
    (4) Foreign passthru payments.
    (5) Withholding on limited FFIs and limited branches.
    (i) Limited FFIs.
    (ii) Limited branches.
    (6) Special rule for dormant accounts.
    (7) Withholding requirements for U.S. branches of participating 
FFIs that are treated as U.S. persons.
    (c) Due diligence for the identification and documentation of 
account holders and payees.
    (1) Scope of paragraph.
    (2) General rules for the identification and documentation of 
account holders and payees.
    (i) Overview.
    (ii) Standards of knowledge.
    (A) In general.
    (B) Limits on reason to know with respect to certain accounts 
acquired in merger of bulk acquisition.
    (1) In general.
    (2) Participating FFIs and certain deemed-compliant FFIs that 
apply the due diligence rules, and U.S. financial institutions.
    (iii) Change in circumstances.
    (A) Obligation to identify a change in circumstances.
    (B) Definition of change in circumstances.
    (C) Requirements following a change in circumstances.
    (iv) Record retention.
    (v) Special rule for U.S. branches of participating FFIs that 
are treated as U.S. persons.
    (3) Identification and documentation procedure for entity 
accounts and payees.
    (i) In general.
    (ii) Timeframe for applying identification and documentation 
procedure for entity accounts and payees.
    (iii) Documentation exception for certain preexisting entity 
accounts.
    (A) Accounts to which this exception applies.
    (B) Aggregation of entity accounts.
    (C) Election to forgo exception.
    (4) Identification and documentation procedure for individual 
accounts other than preexisting accounts.
    (i) In general.
    (ii) Reliance on third-party for identification of individual 
accounts other than preexisting accounts.
    (iii) Alternative identification and documentation procedure for 
certain cash value insurance or annuity contracts.
    (A) Group cash value insurance contracts or group annuity 
contracts.
    (B) Accounts held by beneficiaries of a cash value insurance 
contract that is a life insurance contract.
    (5) Identification and documentation procedure for preexisting 
individual accounts.
    (i) In general.
    (ii) Special rule for preexisting individual accounts previously 
documented as U.S. accounts for purposes of chapter 3 or 61.
    (iii) Exceptions for certain low value preexisting individual 
accounts.
    (A) Accounts to which an exception applies.
    (B) Aggregation of accounts.
    (C) Election to forgo exception.
    (iv) Specific identification and documentation procedures for 
preexisting individual accounts.
    (A) In general.
    (B) U.S. indicia and relevant documentation rules.

[[Page 5903]]

    (1) U.S. indicia.
    (2) Documentation to be retained upon identifying U.S. indicia.
    (i) Designation of account holder as a U.S. citizen or resident.
    (ii) Unambiguous indication of a U.S. place of birth.
    (iii) U.S. address or U.S. mailing address.
    (iv) Only U.S. telephone numbers.
    (v) U.S. telephone numbers and non-U.S. telephone numbers.
    (vi) Standing instructions to pay amounts.
    (vii) Power of attorney or signatory authority granted to a 
person with a U.S. address or ``in-care-of'' address or ``hold 
mail'' address.
    (C) Electronic search for identifying U.S. indicia.
    (D) Enhanced review for identifying U.S. indicia in the case of 
certain high-value accounts.
    (1) In general.
    (2) Relationship manager inquiry.
    (3) Additional review of non-electronic records.
    (4) Limitations on the enhanced review in the case of 
comprehensive electronically searchable information.
    (E) Exception for preexisting individual accounts that a 
participating FFI has documented as held by foreign individuals for 
purposes of meeting its obligations under chapter 61 or its QI, WP, 
or WT agreement.
    (6) Examples.
    (7) Certifications of responsible officer.
    (d) Account reporting.
    (1) Scope of paragraph.
    (2) Reporting requirements in general.
    (i) Accounts subject to reporting.
    (ii) Financial institution required to report an account.
    (A) In general.
    (B) Special reporting of account holders of territory financial 
institutions.
    (C) Special reporting of account holders of a sponsored FFI.
    (D) Special reporting of account holders that are owner-
documented FFIs.
    (E) Branch reporting of accounts.
    (iii) Special U.S. account reporting rules for U.S. payors.
    (A) Special reporting rule for U.S. payors other than U.S. 
branches.
    (B) Special reporting rules for U.S. branches treated as U.S. 
persons.
    (3) Reporting of accounts under section 1471(c)(1).
    (i) In general.
    (ii) Accounts held by specified U.S. persons.
    (iii) Accounts held by U.S. owned foreign entities.
    (iv) Special reporting of accounts held by owner-documented 
FFIs.
    (v) Branch reporting.
    (vi) Form for reporting accounts under section 1471(c)(1).
    (vii) Time and manner of filing.
    (viii) Extensions in filing.
    (4) Descriptions applicable to reporting requirements of Sec.  
1.1471-4(d)(3).
    (i) Address.
    (ii) Account number.
    (iii) Account balance or value.
    (A) In general.
    (B) Currency translation of account balance or value.
    (iv) Payments made with respect to an account.
    (A) Depository accounts.
    (B) Custodial accounts.
    (C) Other accounts.
    (D) Transfers and closing of deposit, custodial, insurance, and 
annuity financial accounts.
    (E) Amount and character of payments subject to reporting.
    (F) Currency translation.
    (v) Record retention requirements.
    (5) Election to perform chapter 61 reporting.
    (i) In general.
    (A) Election under section 1471(c)(2).
    (B) Election to report in a manner similar to section 6047(d).
    (ii) Additional information to be reported.
    (iii) Special reporting of accounts held by owner-documented 
FFIs.
    (iv) Branch reporting.
    (v) Time and manner of making the election.
    (vi) Revocation of election.
    (vii) Filing of information under election.
    (6) Reporting on recalcitrant account holders.
    (i) In general.
    (ii) Definition of dormant account.
    (iii) End of dormancy.
    (iv) Forms.
    (v) Time and manner of filing.
    (vi) Record retention requirements.
    (7) Special reporting rules with respect to the 2013 through 
2015 calendar years.
    (i) In general.
    (ii) Participating FFIs that report under Sec.  1.1471-4(d)(3).
    (A) Reporting with respect to the 2013 and 2014 calendar years.
    (B) Reporting with respect to the 2015 calendar year.
    (iii) Participating FFIs that report under Sec.  1.1471-4(d)(5).
    (iv) Forms for reporting.
    (A) In general.
    (B) Special determination date and timing for reporting with 
respect to the 2013 calendar year.
    (8) Reporting requirements of QIs, WPs and WTs.
    (9) Examples.
    (e) Expanded affiliated group requirements.
    (1) In general.
    (2) Limited branches.
    (i) In general.
    (ii) Branch defined.
    (iii) Limited branch defined.
    (iv) Conditions for limited branch status.
    (v) Term of limited branch status (transitional).
    (3) Limited FFI.
    (i) In general.
    (ii) Limited FFI defined.
    (iii) Conditions for limited FFI status.
    (iv) Period for limited FFI status (transitional).
    (4) Special rule for QIs.
    (f) Verification.
    (1) In general.
    (2) Compliance program.
    (i) In general.
    (ii) Consolidated compliance program.
    (A) In general.
    (B) Requirements of compliance FI.
    (3) Certification of compliance.
    (i) In general.
    (ii) Certification of effective internal controls.
    (iii) Qualified certification.
    (iv) Material failures defined.
    (4) IRS review of compliance.
    (i) General inquiries.
    (ii) Inquiries regarding substantial non-compliance.
    (g) Event of default.
    (1) Defined.
    (2) Notice of event of default.
    (3) Remediation of event of default.
    (h) Collective credit or refund procedures for overpayments.
    (1) In general.
    (2) Persons for which a collective refund is not permitted.
    (3) Payments for which a collective refund is permitted.
    (4) Procedural and other requirements for collective refund.
    (i) Legal prohibitions on reporting U.S. accounts and 
withholding.
    (1) In general.
    (2) Requesting wavier or closure of a U.S. account.
    (i) In general.
    (ii) Valid and effective waiver for a U.S. account.
    (iii) Closure or transfer of U.S. account.
    (3) Legal prohibitions preventing withholding.
    (i) In general.
    (ii) Block or transfer accounts or obligations.
    (j) Effective/applicability date.

Sec.  1.1471-5 Definitions applicable to section 1471.

    (a) U.S. accounts.
    (1) In general.
    (2) Definition of U.S. account.
    (3) Account holder.
    (i) In general.
    (ii) Grantor trust.
    (iii) Financial accounts held by agents that are not financial 
institutions.
    (iv) Jointly held accounts.
    (v) Account holder for insurance and annuity contracts.
    (vi) Examples.
    (4) Exceptions to U.S. account status.
    (i) Exception for certain individual accounts of participating 
FFIs.
    (ii) Election to forgo exception.
    (iii) Example.
    (b) Financial accounts.
    (1) In general.
    (i) Depository account.
    (ii) Custodial account.
    (iii) Equity or debt interest.
    (A) Equity or debt interest in an investment entity.
    (B) Certain equity or debt interests in a holding company or 
treasury center.
    (C) Equity or debt interests in other financial institutions.
    (iv) Insurance and annuity contracts.
    (2) Exceptions.
    (i) Certain savings accounts.
    (A) Retirement and pension accounts.
    (B) Non-retirement savings accounts.
    (C) Rollovers.
    (D) Coordination with section 6038D.
    (E) Account that is tax-flavored.

[[Page 5904]]

    (ii) Certain term life insurance contracts.
    (iii) Account held by an estate.
    (iv) Certain escrow accounts.
    (v) Certain annuity contracts.
    (vi) Account or product excluded under an intergovernmental 
agreement.
    (3) Definitions.
    (i) Depository account.
    (A) In general.
    (B) Exceptions.
    (ii) Custodial account.
    (iii) Equity interest in certain entities.
    (A) Partnership.
    (B) Trust.
    (iv) Regularly traded on an established securities market.
    (v) Value of interest determined, directly or indirectly, 
primarily by reference to assets the give rise (or could give rise) 
to withholdable payments.
    (A) Equity interest.
    (B) Debt interest.
    (vi) Redemption or retirement amount or return earned on the 
interest determined, directly or indirectly, primarily by reference 
to one or more investment entities or passive NFFEs.
    (A) Equity interest.
    (B) Debt interest.
    (vii) Cash value insurance contracts.
    (A) In general.
    (B) Cash value.
    (C) Amounts excluded from cash value.
    (D) Policyholder dividend.
    (4) Account balance or value.
    (i) In general.
    (ii) Special rule for immediate annuity.
    (A) Immediate annuities without minimum benefit guarantees.
    (B) Immediate annuities with a minimum benefit guarantee.
    (C) Net present value of amounts payable in future periods.
    (iii) Account aggregation requirements.
    (A) In general.
    (B) Aggregation rule for relationship managers.
    (C) Examples.
    (iv) Current translation of balance or value.
    (5) Account maintained by financial institution.
    (c) U.S. owned foreign entity.
    (d) Definition of FFI.
    (e) Definition of financial institution.
    (1) In general.
    (2) Banking or similar business.
    (i) In general.
    (ii) Exception for certain lessors and lenders.
    (iii) Application of section 581.
    (iv) Effect of local regulation.
    (3) Holding financial assets for others as a substantial portion 
of its business.
    (i) Substantial portion.
    (A) In general.
    (B) Special rule for start-up entities.
    (ii) Income attributable to holding financial assets and related 
financial services.
    (iii) Effect of local regulation.
    (4) Investment entity.
    (i) In general.
    (ii) Financial assets.
    (iii) Primarily conducts as a business.
    (A) In general.
    (B) Special rule start-up entities.
    (iv) Primarily attributable to investing, reinvesting, or 
trading in financial assets.
    (A) In general.
    (B) Special rule for start-up entities.
    (v) Examples.
    (5) Exclusions.
    (i) Excepted nonfinancial group entities.
    (A) In general.
    (B) Nonfinancial group.
    (C) Holding company.
    (D) Treasury center.
    (E) Captive finance company.
    (ii) Excepted nonfinancial start-up companies or companies 
entering a new line of business.
    (A) In general.
    (B) Exception for investment funds.
    (iii) Excepted nonfinancial entities in liquidation or 
bankruptcy.
    (iv) Excepted inter-affiliate FFI.
    (v) Section 501(c) entities.
    (vi) Non-profit organizations.
    (6) Reserving activities of an insurance company.
    (f) Deemed-compliant FFIs.
    (1) Registered deemed-compliant FFIs.
    (i) Registered deemed-compliant FFI categories.
    (A) Local FFIs.
    (B) Nonreporting members of participating FFI groups.
    (C) Qualified collective investment vehicles.
    (D) Restricted funds.
    (E) Qualified credit card issuers.
    (F) Sponsored investment entities and controlled foreign 
corporations.
    (ii) Procedural requirements for registered deemed-compliant 
FFIs.
    (iii) Deemed-compliant FFI that is merged or acquired.
    (2) Certified deemed-compliant FFIs.
    (i) Nonregistering local bank.
    (ii) FFIs with only low-value accounts.
    (iii) Sponsored, closely-held investment vehicles.
    (iv) Limited life debt investment entities (transitional).
    (3) Owner-documented FFIs.
    (i) In general.
    (ii) Requirements of owner-documented FFI status.
    (4) Definition of restricted distributor.
    (g) Recalcitrant account holders.
    (1) Scope.
    (2) Recalcitrant account holder.
    (3) Start of recalcitrant account holder status.
    (i) Preexisting accounts identified under the procedures 
described in Sec.  1.1471-4(c) for identifying U.S. accounts.
    (A) In general.
    (B) Accounts other than high-value accounts.
    (C) High-value accounts.
    (D) Preexisting accounts that become high-value accounts.
    (ii) Accounts that are not preexisting accounts and accounts 
requiring name/TIN correction.
    (iii) Accounts with changes in circumstances.
    (4) End of recalcitrant account holder status.
    (h) Passthru payment.
    (1) Defined.
    (2) Foreign passthru payment.
    (i) Expanded affiliated group.
    (1) Scope of paragraph.
    (2) Expanded affiliated group defined.
    (i) In general.
    (ii) Partnerships and entities other than corporations.
    (3) Exception for FFIs holding certain capital investments.
    (4) Seed capital.
    (5) Anti-abuse rule.
    (j) Effective/applicability date.

Sec.  1.1471-6 Payments beneficially owned by exempt beneficial 
owners.

    (a) In general.
    (b) Any foreign government, any political subdivision of a 
foreign government, or any wholly owned agency or instrumentality of 
any one or more of the foregoing.
    (1) Integral part.
    (2) Controlled entity.
    (3) Inurement to the benefit of private persons.
    (c) Any international organization or any wholly owned agency or 
instrumentality thereof.
    (d) Foreign central bank of issue.
    (1) In general.
    (2) Separate instrumentality.
    (3) Bank for International Settlements.
    (4) Income on certain collateral.
    (e) Governments of U.S. territories.
    (f) Certain retirement funds.
    (1) Treaty-qualified retirement fund.
    (2) Broad participation retirement fund.
    (3) Narrow participating retirement funds.
    (4) Fund formed pursuant to a plan similar to a section 401(a) 
plan.
    (5) Investment vehicles exclusively for retirement funds.
    (6) Pension fund of an exempt beneficial owner.
    (7) Example.
    (g) Entities wholly owned by exempt beneficial owners.
    (h) Exception for commercial activities.
    (1) General rule.
    (2) Limitation.
    (i) Effective/applicability date.

Sec.  1.1472-1 Withholding on NFFEs.

    (a) In general.
    (b) Withholdable payments made to an NFFE.
    (1) In general.
    (2) Transitional relief.
    (c) Exceptions.
    (1) Beneficial owner that is an excepted NFFE.
    (i) Publicly traded corporation.
    (A) Regularly traded.
    (B) Special rules regarding the regularly traded requirement.
    (1) Year of initial public offering.
    (2) Classes of stock treated as meeting the regularly traded 
requirement.
    (3) Anti-abuse rule.
    (C) Established securities market.
    (1) In general.
    (2) Foreign exchange with multiple tiers.
    (3) Computation of dollar value of stock traded.
    (ii) Certain affiliated entities related to a publicly traded 
corporation.
    (iii) Certain territory entities.
    (iv) Active NFFEs.
    (A) Passive income.
    (B) Exceptions from passive income treatment.

[[Page 5905]]

    (C) Methods of measuring assets.
    (v) Excepted nonfinancial entities.
    (2) Payments made to a WP, WT, or an exempt beneficial owner.
    (d) Rules for determining payee and beneficial owner.
    (1) In general.
    (2) Payments made to an NFFE that is a WP or WT.
    (3) Payments made to a partner or beneficiary of an NFFE that is 
an NWP or NWT.
    (4) Payments made to a beneficial owner that is an NFFE.
    (5) Absence of valid documentation.
    (e) Information reporting requirements.
    (1) Reporting on withholdable payments.
    (2) Reporting on substantial U.S. owners.
    (f) Effective/applicability date.

Sec.  1.1473-1 Section 1473 definitions.

    (a) Definition of withholdable payment.
    (1) In general.
    (2) U.S. source FDAP income defined.
    (i) In general.
    (A) FDAP income defined.
    (B) U.S. source.
    (C) Exceptions to withholding on U.S. source FDAP income not 
applicable under chapter 4.
    (ii) Special rule for certain interest.
    (iii) Original issue discount.
    (iv) REMIC residual interests.
    (v) Withholding liability of payee that is satisfied by 
withholding agent.
    (vi) Special rule for sales of interest bearing debt 
obligations.
    (vii) Payment of U.S. source FDAP income.
    (A) Amount of payment of U.S. source FDAP income.
    (B) When payment of U.S. source FDAP income is made.
    (3) Gross proceeds defined.
    (i) Sale or other disposition.
    (A) In general.
    (B) Special rule for sales effected by brokers.
    (C) Special rule for gross proceeds from sales settles by a 
clearing organization.
    (ii) Property of a type that can produce interest or dividend 
payments that would be U.S. source FDAP income.
    (A) In general.
    (B) Contracts producing dividend equivalent payments.
    (C) Regulated investment company distributions.
    (iii) Payment of gross proceeds.
    (A) When gross proceeds are paid.
    (B) Amount of gross proceeds.
    (4) Payments not treated as withholdable payments.
    (i) Certain short-term obligations.
    (ii) Effectively connected income.
    (iii) Excluded nonfinancial payments.
    (iv) Gross proceeds from sales of excluded property.
    (v) Fractional shares.
    (vi) Offshore payments of U.S. source FDAP income prior to 2017 
(transitional).
    (5) Special payment rules for flow-through entities, complex 
trusts, and estates.
    (i) In general.
    (ii) Partnerships.
    (iii) Simple trusts.
    (iv) Complex trusts and estates.
    (v) Grantor trusts.
    (vi) Special rule for an NWP or NWT.
    (vii) Special rule for determining when gross proceeds are 
treated as paid to a partner, owner, or beneficiary of a flow-
through entity.
    (6) Reporting of withholdable payments.
    (7) Example.
    (b) Substantial U.S. owner.
    (1) Definition.
    (2) Indirect ownership of foreign entities.
    (i) Indirect ownership of stock.
    (ii) Indirect ownership in a foreign partnership or ownership of 
a beneficial interest in a foreign trust.
    (iii) Ownership and holdings through options.
    (iv) Determination of proportionate interest.
    (v) Interests owned or held by a related person.
    (3) Beneficial interest in a foreign trust.
    (i) In general.
    (ii) Determining the 10 percent threshold in the case of a 
beneficial interest in a foreign trust.
    (iii) Valuation rules for beneficial interests in foreign 
trusts.
    (4) Exceptions.
    (i) De minimis amount or value exception.
    (ii) Trusts wholly owned by certain U.S. persons.
    (5) Special rule for certain financial institutions.
    (6) Determination dates for substantial U.S. owners.
    (7) Examples.
    (c) Specified U.S. person.
    (d) Withholding agent.
    (1) In general.
    (2) Participating FFIs and registered deemed-compliant FFIs as 
withholding agents.
    (3) Grantor trusts as withholding agents.
    (4) Deposit and return requirements.
    (5) Multiple withholding agents.
    (6) Exception for certain individuals.
    (e) Foreign entity.
    (f) Effective/applicability date.

Sec.  1.1474-1 Liability for withheld tax and withholding agent 
reporting.

    (a) Payment and returns of tax withheld.
    (1) In general.
    (2) Withholding agent liability.
    (3) Use of agents.
    (i) In general.
    (ii) Authorized agent.
    (iii) Liability of withholding agent acting through an agent.
    (4) Liability for failure to obtain documentation timely or to 
act in accordance with applicable presumptions.
    (i) In general.
    (ii) Withholding satisfied by another withholding agent.
    (b) Payment of withheld tax.
    (1) In general.
    (2) Special rule for foreign passthru payments and payments of 
gross proceeds that include an undetermined amount of income subject 
to tax.
    (c) Income tax return.
    (1) In general.
    (2) Participating FFIs, registered deemed-compliant FFIs, and 
U.S. branches treated as U.S. persons.
    (3) Amended returns.
    (d) Information returns for payment reporting.
    (1) Filing requirement.
    (i) In general.
    (ii) Recipient.
    (A) Defined.
    (B) Persons that are not recipients.
    (2) Amounts subject to reporting.
    (i) In general.
    (ii) Exception to reporting.
    (iii) Coordination with chapter 3.
    (3) Required information.
    (4) Method of reporting.
    (i) Payments by U.S. withholding agent to recipients.
    (A) Payments to certain entities that are beneficial owners.
    (B) Payments to participating FFIs, deemed-compliant FFIs, and 
certain QIs.
    (C) Amounts paid to a U.S. branch of a participating FFI or 
registered deemed-compliant FFI.
    (D) Amounts paid to territory financial institutions that are 
flow-through entities or acting as intermediaries.
    (E) Amounts paid to NFFEs.
    (ii) Payments made by withholding agents to certain entities 
that are not recipients.
    (A) Entities that provide information for a withholding agent to 
perform specific payee reporting.
    (B) Nonparticipating FFI that is a flow-through entity or 
intermediary.
    (C) Disregarded entities.
    (iii) Reporting by participating FFIs and deemed-compliant FFIs 
(including QIs, WPs, and WTs).
    (A) In general.
    (B) Special reporting requirements of participating FFIs, 
deemed-compliant FFIs, and FFIs that make an election under section 
1471(b)(3).
    (C) Reporting by participating FFIs and registered deemed-
compliant FFIs (including QIs, WPs, and WTs) for certain payments 
made to nonparticipating FFIs (transitional).
    (D) Reporting by U.S. branches of a participating FFI or 
registered deemed-compliant FFI that is treated as a U.S. person.
    (iv) Reporting by territory financial institutions.
    (v) Nonparticipating FFIs.
    (vi) Other withholding agents.
    (e) Magnetic media reporting.
    (f) Indemnification of withholding agent.
    (g) Extensions of time to file Forms 1042 and 1042-S.
    (h) Penalties.
    (i) Additional reporting requirements with respect to U.S. owned 
foreign entities and owner-documented FFIs.
    (1) Reporting by certain withholding agents with respect to 
owner-documented FFIs.
    (2) Reporting by certain withholding agents with respect to U.S. 
owned foreign entities that are NFFEs.
    (3) Cross reference to reporting by participating FFIs.
    (j) Effective/applicability date.

Sec.  1.1474-2 Adjustments for overwithholding or underwithholding 
of tax.

    (a) Adjustments of overwithheld tax.
    (1) In general.
    (2) Overwithholding.
    (3) Reimbursement of tax.

[[Page 5906]]

    (i) General rule.
    (ii) Record maintenance.
    (4) Set-offs.
    (5) Examples.
    (b) Withholding of additional tax when underwithholding occurs.
    (c) Effective/applicability date.

Sec.  1.1474-3 Withheld tax as credit to beneficial owner of income.

    (a) Creditable tax.
    (b) Amounts paid to persons that are not the beneficial owners.
    (c) Effective/applicability date.

Sec.  1.1474-4 Tax paid only once.

    (a) Tax paid.
    (b) Effective/applicability date.

Sec.  1.1474-5 Refunds or credits.

    (a) Refund and credit.
    (1) In general.
    (2) Limitation to refund and credit for a nonparticipating FFI.
    (3) Requirement to provide additional documentation for certain 
beneficial owners.
    (i) In general.
    (ii) Claim of reduced withholding under an income tax treaty.
    (iii) Additional documentation to be furnished to the IRS for 
certain NFFEs.
    (b) Tax repaid to payee.
    (c) Effective/applicability date.

Sec.  1.1474-6 Coordination of chapter 4 with other withholding 
provisions.

    (a) In general.
    (b) Coordination of withholding for amounts subject to 
withholding under sections 1441, 1442, and 1443.
    (1) In general.
    (2) When withholding is applied.
    (3) Special rule for certain substitute dividend payments.
    (c) Coordination with amounts subject to withholding under 
section 1445.
    (1) In general.
    (2) Determining amount of distribution from certain domestic 
corporations subject to section 1445 or chapter 4 withholding.
    (i) Distribution from qualified investment entity.
    (ii) Distribution from a United States real property holding 
corporation.
    (d) Coordination with section 1446.
    (1) In general.
    (2) Determining the amount of distribution subject to section 
1446.
    (e) Example.
    (f) Effective/applicability date.

Sec.  1.1474-7 Confidentiality of information.

    (a) Confidentiality of information.
    (b) Exception for disclosure of participating FFIs.
    (c) Effective/applicability date.

Sec.  301.1474-1 Required use of magnetic media for financial 
institutions filing Form 1042-S or Form 8966.

    (a) Financial institutions filing certain information returns.
    (b) Waiver.
    (c) Failure to file.
    (d) Meaning of terms.
    (1) Magnetic media.
    (2) Financial institution.
    (e) Effective/applicability date.

0
Par. 5. Section 1.1471-1 is added to read as follows:


Sec.  1.1471-1  Scope of chapter 4 and definitions.

    (a) Scope of chapter 4 of the Internal Revenue Code. Sections 
1.1471-1 through 1.1474-7 provide rules for withholding when a 
withholding agent makes a payment to an FFI or NFFE and prescribe the 
requirements for and definitions relevant to FFIs and NFFEs to which 
withholding will not apply. Section 1.1471-1 provides definitions for 
terms used in chapter 4 of the Internal Revenue Code (Code) and the 
regulations thereunder. Section 1.1471-2 provides rules for withholding 
under section 1471(a) on payments to FFIs, including the exception from 
withholding for payments made with respect to certain grandfathered 
obligations. Section 1.1471-3 provides rules for determining the payee 
of a payment and the documentation requirements to establish a payee's 
chapter 4 status. Section 1.1471-4 describes the requirements of an FFI 
agreement under section 1471(b) and the application of sections 1471(b) 
and (c) to an expanded affiliated group of FFIs. Section 1.1471-5 
defines terms relevant to section 1471 and the FFI agreement and 
defines categories of FFIs that will be deemed to have met the 
requirements of section 1471(b) pursuant to section 1471(b)(2). Section 
1.1471-6 defines classes of beneficial owners of payments that are 
exempt from withholding under chapter 4. Section 1.1472-1 provides 
rules for withholding when a withholding agent makes a payment to an 
NFFE, and defines categories of NFFEs that are not subject to 
withholding. Section 1.1473-1 provides definitions of the statutory 
terms in section 1473. Section 1.1474-1 provides rules relating to a 
withholding agent's liability for withheld tax, filing of income tax 
and information returns, and depositing of tax withheld. Section 
1.1474-2 provides rules relating to adjustments for overwithholding and 
underwithholding of tax. Section 1.1474-3 provides the circumstances in 
which a credit is allowed to a beneficial owner for a withheld tax. 
Section 1.1474-4 provides that a chapter 4 withholding obligation need 
only be collected once. Section 1.1474-5 contains rules relating to 
credits and refunds of tax withheld. Section 1.1474-6 provides rules 
coordinating withholding under sections 1471 and 1472 with withholding 
provisions under other sections of the Code. Section 1.1474-7 provides 
the confidentiality requirement for information obtained to comply with 
the requirements of chapter 4. Any reference in the provisions of 
sections 1471 through 1474 to an amount that is stated in U.S. dollars 
includes the foreign currency equivalent of that amount. Except as 
otherwise provided, the provisions of sections 1471 through 1474 and 
the regulations thereunder apply only for purposes of chapter 4. See 
Sec.  301.1474-1 of this chapter for the requirements for reporting on 
magnetic media that apply to financial institutions making payments or 
otherwise reporting accounts pursuant to chapter 4.
    (b) Definitions. Except as otherwise provided in this paragraph (b) 
or under the terms of an applicable Model 2 IGA, the following 
definitions apply for purposes of sections 1471 through 1474 and the 
regulations under those sections.
    (1) Account. The term account means a financial account as defined 
in Sec.  1.1471-5(b).
    (2) Account holder. The term account holder means the person who 
holds an account, as determined under Sec.  1.1471-5(a)(3).
    (3) Active NFFE. The term active NFFE has the meaning set forth in 
Sec.  1.1472-1(c)(1)(iv).
    (4) AML due diligence. The term AML due diligence means the 
customer due diligence procedures of a financial institution pursuant 
to the anti-money laundering or similar requirements to which the 
financial institution, or branch thereof, is subject. This includes 
identifying the customer (including the owners of the customer), 
understanding the nature and purpose of the account, and ongoing 
monitoring.
    (5) Annuity contract. The term annuity contract means a contract 
under which the issuer agrees to make payments for a period of time 
determined in whole or in part by reference to the life expectancy of 
one or more individuals. The term also includes a contract that is 
considered to be an annuity contract in accordance with the law, 
regulation, or practice of the jurisdiction in which the contract was 
issued, and under which the issuer agrees to make payments for a term 
of years. For purposes of the preceding sentence, it is immaterial 
whether a contract satisfies any of the substantive U.S. tax rules (for 
example, sections 72(s), 72(u), 817(h), and the investor control 
prohibition) applicable to the taxation of a contract holder or issuer.
    (6) Assumes primary withholding responsibility. The term assumes 
primary withholding responsibility means that a QI, territory financial 
institution, or U.S. branch of a participating FFI or registered 
deemed-compliant FFI that assumes responsibility for withholding on a

[[Page 5907]]

payment for purposes of chapters 3 and 4 as if it were a U.S. person. A 
QI may only assume primary withholding responsibility if it does not 
make an election to be withheld upon with respect to the payment.
    (7) Beneficial owner. Except as provided in Sec.  1.1472-1(d), 
Sec.  1.1471-6(d)(4), and Sec.  1.1471-6(f), the term beneficial owner 
has the meaning set forth in Sec.  1.1441-1(c)(6).
    (8) Blocked account. The term blocked account has the meaning set 
forth in Sec.  1.1471-4(e)(2)(iii)(B).
    (9) Broker. The term broker means any person, U.S. or foreign, 
that, in the ordinary course of a trade or business during the calendar 
year, stands ready to effect sales to be made by others. Examples of a 
broker include an obligor that regularly issues and retires its own 
debt obligations, a corporation that regularly redeems its own stock, 
and a clearing organization that effects sales of securities for its 
members. A broker does not include an international organization 
described in Sec.  1.1471-6(c) that redeems or retires an obligation of 
which it is the issuer, a stock transfer agent that records transfers 
of stock for a corporation if the nature of the activities of the agent 
is such that the agent ordinarily would not know the gross proceeds 
from sales, an escrow agent that effects no sales other than 
transactions incidental to the purpose of the escrow (such as sales to 
collect on collateral), or a corporation that issues and retires long-
term debt on an irregular basis.
    (10) Cash value. The term cash value has the meaning set forth in 
Sec.  1.1471-5(b)(3)(vii)(B).
    (11) Cash value insurance contract. The term cash value insurance 
contract has the meaning set forth in Sec.  1.1471-5(b)(3)(vii).
    (12) Certified deemed-compliant FFI. The term certified deemed-
compliant FFI means an FFI described in Sec.  1.1471-5(f)(2).
    (13) Change in circumstances. The term change in circumstances has 
the meaning set forth in Sec.  1.1471-3(c)(6)(ii)(E) for withholding 
agents and, in the case of a participating FFI, has the meaning set 
forth in Sec.  1.1471-4(c)(2)(iii).
    (14) Chapter 3. For purposes of chapter 4, the term chapter 3 means 
sections 1441 through 1464 and the regulations thereunder, but does not 
include sections 1445 and 1446 and the regulations thereunder, unless 
the context indicates otherwise.
    (15) Chapter 4. The term chapter 4 means sections 1471 through 1474 
and the regulations thereunder.
    (16) Chapter 4 reportable amount. The term chapter 4 reportable 
amount has the meaning set forth in Sec.  1.1474-1(d)(2)(i).
    (17) Chapter 4 status. The term chapter 4 status means a person's 
status as a U.S. person, a specified U.S. person, an individual that is 
a foreign person, a participating FFI, a deemed-compliant FFI, a 
restricted distributor, an exempt beneficial owner, a nonparticipating 
FFI, a territory financial institution, an excepted NFFE, or a passive 
NFFE.
    (18) Clearing organization. The term clearing organization means an 
entity that is in the business of holding securities for its member 
organizations or clearing trades of securities and transferring, or 
instructing the transfer of, securities by credit or debit to the 
account of a member without the necessity of physical delivery of the 
securities.
    (19) Complex trust. A complex trust is a trust that is not a simple 
trust or a grantor trust.
    (20) Consolidated obligations. The term consolidated obligations 
means multiple obligations that a withholding agent (including a 
withholding agent that is an FFI) has chosen to treat as a single 
obligation in order to treat the obligations as preexisting obligations 
pursuant to paragraph (b)(98)(ii) of this section or in order to share 
documentation between the obligations pursuant to Sec.  1.1471-3(c)(8). 
A withholding agent that has opted to treat multiple obligations as 
consolidated obligations pursuant to the previous sentence must also 
treat the obligations as a single obligation for purposes of satisfying 
the standards of knowledge requirements set forth in Sec. Sec.  1.1471-
3(e) and 1.1471-4(c)(2)(ii), and for purposes of determining the 
balance or value of any of the obligations when applying any of the 
account thresholds applicable to due diligence or reporting as set 
forth in Sec. Sec.  1.1471-3(c)(6)(ii), 1.1471-3(d), 1.1471-4(c), 
1.1471-5(a)(4), and 1.1471-5(b)(3)(vii). For example, with respect to 
consolidated obligations, if a withholding agent has reason to know 
that the chapter 4 status assigned to the account holder or payee of 
one of the consolidated obligations is inaccurate, then it has reason 
to know that the chapter 4 status assigned for all other consolidated 
obligations of the account holder or payee is inaccurate. Similarly, to 
the extent that an account balance or value is relevant for purposes of 
applying any account threshold to one or more of the consolidated 
obligations, the withholding agent must aggregate the balance or value 
of all such consolidated obligations.
    (21) Custodial account. The term custodial account has the meaning 
set forth in Sec.  1.1471-5(b)(3)(ii).
    (22) Custodial institution. The term custodial institution has the 
meaning set forth in Sec.  1.1471-5(e)(1)(ii).
    (23) Customer master file. A customer master file includes the 
primary files of a participating FFI or deemed-compliant FFI for 
maintaining account holder information, such as information used for 
contacting account holders and for satisfying AML due diligence.
    (24) Deemed-compliant FFI. The term deemed-compliant FFI means an 
FFI that is treated, pursuant to section 1471(b)(2) and Sec.  1.1471-
5(f), as meeting the requirements of section 1471(b). The term deemed-
compliant FFI also includes a QI branch of a U.S. financial institution 
that is a reporting Model 1 FFI.
    (25) Deferred annuity contract. The term deferred annuity contract 
means an annuity contract other than an immediate annuity contract.
    (26) Depository account. The term depository account has the 
meaning set forth in Sec.  1.1471-5(b)(3)(i).
    (27) Depository institution. The term depository institution has 
the meaning set forth in Sec.  1.1471-5(e)(1)(i).
    (28) Documentary evidence. The term documentary evidence means 
documents, other than a withholding certificate or written statement, 
that a withholding agent is permitted to rely upon to determine the 
chapter 4 status of a person in accordance with Sec.  1.1471-3(c)(5).
    (29) Documentation. The term documentation means withholding 
certificates, written statements, documentary evidence, and other 
documents that may be relevant in determining a person's chapter 4 
status, including any document containing a determination of the 
account holder's citizenship or residency for tax or AML due diligence 
purposes or an account holder's claim of citizenship or residency for 
tax or AML due diligence purposes.
    (30) Dormant account. The term dormant account has the meaning set 
forth in Sec.  1.1471-4(d)(6)(ii).
    (31) Effective date of the FFI agreement. The term effective date 
of the FFI agreement means the date on which the IRS issues a GIIN to 
the participating FFI. For participating FFIs that receive a GIIN prior 
to December 31, 2013, the effective date of the FFI agreement is 
December 31, 2013.
    (32) EIN. The term EIN means an employer identification number 
(also known as a federal tax identification number) described in Sec.  
301.6109-1(a)(1)(i) of this chapter.

[[Page 5908]]

    (33) Election to be withheld upon. The term election to be withheld 
upon has the meaning set forth in Sec.  1.1471-2(a)(2)(iii).
    (34) Electronically searchable information. The term electronically 
searchable information means information that an FFI maintains in its 
tax reporting files, customer master files, or similar files, and that 
is stored in the form of an electronic database against which standard 
queries in programming languages, such as Structured Query Language, 
may be used. Information, data, or files are not electronically 
searchable merely because they are stored in an image retrieval system 
(such as portable document format (.pdf) or scanned documents).
    (35) Entity. The term entity means any person other than an 
individual.
    (36) Entity account. The term entity account means an account held 
by one or more entities.
    (37) Excepted NFFE. The term excepted NFFE means an NFFE that is 
described in Sec.  1.1472-1(c)(1).
    (38) Exempt beneficial owner. The term exempt beneficial owner 
means any person described in Sec.  1.1471-6(b) through (g) or that is 
otherwise treated as an exempt beneficial owner pursuant to a Model 1 
IGA or Model 2 IGA.
    (39) Expanded affiliated group. The term expanded affiliated group 
has the meaning set forth in Sec.  1.1471-5(i)(2).
    (40) FATF. The term FATF means the Financial Action Task Force, an 
inter-governmental body that develops and promotes international 
policies to combat money laundering and terrorist financing.
    (41) FATF-compliant jurisdiction. The term FATF-compliant 
jurisdiction means a jurisdiction that--
    (i) Is not subject to a FATF call on its members and other 
jurisdictions to apply counter-measures to protect the international 
financial system from the on-going and substantial money laundering and 
terrorist financing risks emanating from the jurisdiction;
    (ii) Is not a jurisdiction with strategic AML/CFT (anti-money 
laundering and combating the financing of terrorism) deficiencies that 
has not made sufficient progress in addressing the deficiencies or has 
not committed to an action plan developed with the FATF to address the 
deficiencies; and
    (iii) Is not a jurisdiction with strategic AML/CFT deficiencies 
that the FATF has identified as not making sufficient progress on its 
action plan agreed upon with the FATF.
    (42) FFI. The term FFI or foreign financial institution has the 
meaning set forth in Sec.  1.1471-5(d).
    (43) FFI agreement. The term FFI agreement means an agreement that 
is described in Sec.  1.1471-4(a). An FFI agreement includes a QI 
agreement, a withholding partnership agreement, and a withholding trust 
agreement that is entered into by an FFI (other than an FFI that is a 
registered deemed-compliant FFI, including a reporting Model 1 FFI) and 
that has an effective date or renewal date on or after December 31, 
2013. The term FFI agreement also includes a QI agreement that is 
entered into by a foreign branch of a U.S. financial institution (other 
than a branch that is a reporting Model 1 FFI) and that has an 
effective date or renewal date on or after December 31, 2013.
    (44) Financial account. The term financial account has the meaning 
set forth in Sec.  1.1471-5(b).
    (45) Financial institution. The term financial institution has the 
meaning set forth in Sec.  1.1471-5(e).
    (46) Flow-through entity. The term flow-through entity means a 
partnership, simple trust, or grantor trust, as determined under U.S. 
tax principles.
    (47) Flow-through withholding certificate. The term flow-through 
withholding certificate means a Form W-8IMY submitted by a foreign 
partnership, foreign simple trust, or foreign grantor trust.
    (48) Foreign entity. The term foreign entity has the meaning set 
forth in Sec.  1.1473-1(e).
    (49) Foreign passthru payment. The term foreign passthru payment 
has the meaning set forth in Sec.  1.1471-5(h)(2).
    (50) Foreign payee. The term foreign payee means any payee other 
than a U.S. payee.
    (51) Foreign person. The term foreign person means any person other 
than a U.S. person and includes a QI branch of a U.S. financial 
institution.
    (52) GIIN. The term GIIN or Global Intermediary Identification 
Number means the identification number that is assigned to a 
participating FFI or registered deemed-compliant FFI. The term GIIN or 
Global Intermediary Identification Number also includes the 
identification number assigned to a reporting Model 1 FFI for purposes 
of identifying such entity to withholding agents. All GIINs will appear 
on the IRS FFI list.
    (53) Grandfathered obligation. The term grandfathered obligation 
has the meaning set forth in Sec.  1.1471-2(b).
    (54) Grantor trust. A grantor trust is a trust with respect to 
which one or more persons are treated as owners of all or a portion of 
the trust under sections 671 through 679. If only a portion of the 
trust is treated as owned by a person, that portion is a grantor trust 
with respect to that person.
    (55) Gross proceeds. The term gross proceeds has the meaning set 
forth in Sec.  1.1473-1(a)(3).
    (56) Group annuity contract. The term group annuity contract means 
an annuity contract under which the obligees are individuals who are 
affiliated through an employer, trade association, labor union, or 
other association or group.
    (57) Group insurance contract. The term group insurance contract 
means an insurance contract that--
    (i) Provides coverage on individuals who are affiliated through an 
employer, trade association, labor union, or other association or 
group; and
    (ii) Charges a premium for each member of the group (or member of a 
class within the group) that is determined without regard to the 
individual health characteristics other than age, gender, and smoking 
habits of the member (or class of members) of the group.
    (58) Immediate annuity. The term immediate annuity means an annuity 
contract that--
    (i) Is purchased with a single premium or annuity consideration; 
and
    (ii) No later than one year from the purchase date of the contract 
commences to pay annually or more frequently substantially equal 
periodic payments.
    (59) Individual account. The term individual account means an 
account held by one or more individuals.
    (60) Insurance company. The term insurance company means an entity 
or arrangement--
    (i) That is regulated as an insurance business under the laws, 
regulations, or practices of any jurisdiction in which the company does 
business;
    (ii) The gross income of which (for example, gross premiums and 
gross investment income) arising from insurance, reinsurance, and 
annuity contracts for the immediately preceding calendar year exceeds 
50 percent of total gross income for such year; or
    (iii) The aggregate value of the assets of which associated with 
insurance, reinsurance, and annuity contracts at any time during the 
immediately preceding calendar year exceeds 50 percent of total assets 
at any time during such year.
    (61) Insurance contract. The term insurance contract means a 
contract (other than an annuity contract) under which the issuer in 
exchange for consideration agrees to pay an amount upon the occurrence 
of a specified contingency involving mortality,

[[Page 5909]]

morbidity, accident, liability, or property risk.
    (62) Intermediary. The term intermediary has the meaning set forth 
in Sec.  1.1441-1(c)(13).
    (63) Intermediary withholding certificate. The term intermediary 
withholding certificate means a Form W-8IMY submitted by an 
intermediary.
    (64) Investment entity. The term investment entity has the meaning 
set forth in Sec.  1.1471-5(e)(1)(iii).
    (65) Investment-linked annuity contract. The term investment-linked 
annuity contract means an annuity contract under which benefits or 
premiums are adjusted to reflect the investment return or market value 
of assets associated with the contract.
    (66) Investment-linked insurance contract. The term investment-
linked insurance contract means an insurance contract under which 
benefits, premiums, or the period of coverage are adjusted to reflect 
the investment return or market value of assets associated with the 
contract.
    (67) IRS FFI list. The term IRS FFI list means the list published 
by the IRS that contains the names and GIINs for all participating 
FFIs, registered deemed-compliant FFIs, and reporting Model 1 FFIs.
    (68) Life annuity contract. The term life annuity contract means an 
annuity contract that provides for payments over the life or lives of 
one or more individuals.
    (69) Life insurance contract. The term life insurance contract 
means an insurance contract under which the issuer, in exchange for 
consideration, agrees to pay an amount upon the death of one or more 
individuals. That a contract provides one or more payments (for 
example, for endowment benefits or disability benefits) in addition to 
a death benefit will not cause the contract to be other than a life 
insurance contract. For purposes of the preceding sentence, it is 
immaterial whether a contract satisfies any of the substantive U.S. tax 
rules (for example, sections 101(f), 817(h), 7702, or investor control 
prohibition) applicable to the taxation of the contract holder or 
issuer.
    (70) Limited branch. The term limited branch has the meaning set 
forth in Sec.  1.1471-4(e)(2)(iii).
    (71) Limited FFI. The term limited FFI has the meaning set forth in 
Sec.  1.1471-4(e)(3)(ii).
    (72) Model 1 IGA. The term Model 1 IGA means an agreement or 
arrangement between the United States or the Treasury Department and a 
foreign government or one or more agencies thereof to implement FATCA 
through reporting by financial institutions to such foreign government 
or agency thereof, followed by automatic exchange of the reported 
information with the IRS. The IRS will publish a list identifying all 
countries that are treated as having in effect a Model 1 IGA.
    (73) Model 2 IGA. The term Model 2 IGA means an agreement or 
arrangement between the United States or the Treasury Department and a 
foreign government or one or more agencies thereof to facilitate the 
implementation of FATCA through reporting by financial institutions 
directly to the IRS in accordance with the requirements of an FFI 
agreement, supplemented by the exchange of information between such 
foreign government or agency thereof and the IRS. The IRS will publish 
a list identifying all countries that are treated as having in effect a 
Model 2 IGA.
    (74) NFFE. The term NFFE or non-financial foreign entity means a 
foreign entity that is not a financial institution (including a 
territory NFFE). The term also means a foreign entity treated as an 
NFFE pursuant to a Model 1 IGA or Model 2 IGA.
    (75) Nonparticipating FFI. The term nonparticipating FFI means an 
FFI other than a participating FFI, a deemed-compliant FFI, or an 
exempt beneficial owner.
    (76) Nonreporting IGA FFI. The term nonreporting IGA FFI means an 
FFI that is identified as a nonreporting financial institution pursuant 
to a Model 1 IGA or Model 2 IGA that is not a registered deemed-
compliant FFI.
    (77) Non-U.S. account. The term non-U.S. account means an account 
that is not a U.S. account and that does not have an account holder 
that is a nonparticipating FFI or recalcitrant account holder.
    (78) NQI. The term NQI or nonqualified intermediary has the meaning 
set forth in Sec.  1.1441-1(c)(14).
    (79) NWP. The term NWP or nonwithholding foreign partnership means 
a foreign partnership that is not a withholding foreign partnership.
    (80) NWT. The term NWT or nonwithholding foreign trust means a 
foreign trust as defined in section 7701(a)(31)(B) that is a simple 
trust or grantor trust and is not a withholding foreign trust.
    (81) Offshore account. The term offshore account means an account 
that is an offshore obligation, all payments to which are made outside 
of the United States, within the meaning of Sec.  1.6049-5(e).
    (82) Offshore obligation. The term offshore obligation means any 
account, instrument, or contract that is maintained and executed at an 
office or branch of the withholding agent at any location outside of 
the United States or in any location in a U.S. territory. The term also 
includes any equity interest in a foreign entity that is purchased by 
the owner of such interest outside of the United States either directly 
from the entity or from another person that is located outside of the 
United States.
    (83) Owner. The term owner means a person described in Sec.  
1.1473-1(b)(1), without regard to whether such person is a U.S. person 
and without regard to whether such person owns a ten percent interest 
in the entity. The term also includes a person that owns a 
discretionary interest in a trust and receives a distribution during 
the calendar year.
    (84) Owner-documented FFI. The term owner-documented FFI means an 
FFI described in Sec.  1.1471-5(f)(3).
    (85) Participating FFI. The term participating FFI means an FFI 
that has agreed to comply with the requirements of an FFI agreement, 
including an FFI described in a Model 2 IGA that has agreed to comply 
with the requirements of an FFI agreement. The term participating FFI 
also includes a QI branch of a U.S. financial institution, unless such 
branch is a reporting Model 1 FFI.
    (86) Participating FFI group. The term participating FFI group 
means an expanded affiliated group that includes one or more 
participating FFIs and meets the requirements of Sec.  1.1471-4(e)(1). 
The term participating FFI group also means an expanded affiliated 
group in which one or more members of the group is a reporting Model 1 
FFI and each member of the group that is an FFI is a registered deemed-
compliant FFI, nonreporting IGA FFI, limited FFI, or retirement fund 
described in Sec.  1.1471-6(f).
    (87) Partnership. The term partnership has the meaning set forth in 
Sec.  301.7701-2(c)(1) of this chapter.
    (88) Passive NFFE. The term passive NFFE means an NFFE other than 
an excepted NFFE.
    (89) Passthru payment. The term passthru payment has the meaning 
set forth in Sec.  1.1471-5(h).
    (90) Payee. The term payee has the meaning set forth in Sec.  
1.1471-3(a).
    (91) Payment with respect to an offshore obligation. The term 
payment with respect to an offshore obligation means a payment made 
outside of the United States, within the meaning of Sec.  1.6049-5(e), 
with respect to an offshore obligation.
    (92) Payor. The term payor has the meaning set forth in Sec. Sec.  
31.3406(a)-2 of this chapter and 1.6049-(a)(2) and generally includes a 
withholding agent.

[[Page 5910]]

    (93) Permanent residence address. The term permanent residence 
address is the address in the country of which the person claims to be 
a resident for purposes of that country's income tax. The address of a 
financial institution with which the person maintains an account, a 
post office box, or an address used solely for mailing purposes is not 
a permanent residence address unless such address is the only permanent 
address used by the person and appears as the person's registered 
address in the person's organizational documents. Further, an address 
that is provided subject to instructions to hold all mail to that 
address is not a permanent residence address. If the person is an 
individual who does not have a tax residence in any country, the 
permanent address is the place at which the person normally resides. If 
the person is an entity and does not have a tax residence in any 
country, then the permanent residence address is the place at which the 
person maintains its principal office.
    (94) Person. The term person has the meaning set forth in section 
7701(a)(1) and the regulations thereunder, and also includes an entity 
or arrangement that is an insurance company. The term person does not 
include a wholly owned entity that is disregarded for federal tax 
purposes as an entity separate from its owner. Notwithstanding the 
previous sentence, the term person includes, with respect to a 
withholdable payment, a QI branch of a U.S. financial institution.
    (95) Preexisting account. The term preexisting account means a 
financial account that is a preexisting obligation.
    (96) Preexisting entity account. The term preexisting entity 
account means a preexisting account held by one or more entities.
    (97) Preexisting individual account. The term preexisting 
individual account means a preexisting account held by one or more 
individuals.
    (98) Preexisting obligation--(i) The term preexisting obligation 
means any account, instrument, contract, debt, or equity interest 
maintained, executed, or issued by the withholding agent that is 
outstanding on December 31, 2013. With respect to a withholding agent 
that is a participating FFI, the term preexisting obligation means any 
account, instrument, or contract (including any debt or equity 
interest) maintained, executed, or issued by the FFI that is 
outstanding on the effective date of the FFI agreement. With respect to 
a withholding agent that is a registered deemed-compliant FFI, a 
preexisting obligation means any account, instrument, or contract 
(including any debt or equity interest) that is maintained, executed, 
or issued by the FFI prior to the later of the date that the FFI 
registers as a deemed-compliant FFI pursuant to Sec.  1.1471-5(f)(1) 
and receives a GIIN or the date the FFI is required to implement its 
account opening procedures under Sec.  1.1471-5(f).
    (ii) The term preexisting obligation also includes any obligation 
(referring to an account, instrument, contract, debt, or equity 
interest) of an account holder or payee, regardless of the date such 
obligation was entered into, if--
    (A) The account holder or payee also holds with the withholding 
agent (or a member of the withholding agent's expanded affiliated group 
or sponsored FFI group) an account, instrument, contract, or equity 
interest that is a preexisting obligation under paragraph (b)(98)(i) of 
this section;
    (B) The withholding agent (and, as applicable, the member of the 
withholding agent's expanded affiliated group or sponsored FFI group) 
treats both of the aforementioned obligations, and any other 
obligations of the payee or account holder that are treated as 
preexisting obligations under this paragraph (b)(98)(ii), as 
consolidated obligations; and
    (C) With respect to an obligation that is subject to AML due 
diligence, the withholding agent is permitted to satisfy such AML due 
diligence for the obligation by relying upon the AML due diligence 
performed for the preexisting obligation described in paragraph 
(b)(96)(i) of this section.
    (99) Pre-FATCA Form W-8. The term pre-FATCA Form W-8 means a 
version of a Form W-8 (or a substitute form) that was issued prior to 
2013 and that does not contain chapter 4 statuses but otherwise meets 
the requirements of Sec.  1.1441-1(e)(1)(ii) applicable to such 
certificate and has not expired.
    (100) Prima facie FFI. The term prima facie FFI means an entity 
described in Sec.  1.1471-2(a)(4)(ii)(B).
    (101) QI. The term QI or qualified intermediary has the meaning set 
forth in Sec.  1.1441-1(e)(5)(ii).
    (102) QI agreement. The term QI agreement means the agreement 
described in Sec.  1.1441-1(e)(5)(iii).
    (103) QI branch of a U.S. financial institution. The term QI branch 
of a U.S. financial institution means a foreign branch of a U.S. 
financial institution for which a QI agreement is in effect.
    (104) Recalcitrant account holder. The term recalcitrant account 
holder has the meaning set forth in Sec.  1.1471-5(g).
    (105) Registered deemed-compliant FFI. The term registered deemed-
compliant FFI means an FFI described in Sec.  1.1471-5(f)(1). The term 
registered deemed-compliant FFI also includes a QI branch of a U.S. 
financial institution that is a reporting Model 1 FFI.
    (106) Relationship manager. A relationship manager is an officer or 
other employee of an FFI who is assigned responsibility for specific 
account holders on an on-going basis (including as an officer or 
employee that is a member of an FFI's private banking department), 
advises account holders regarding their banking, investment, trust, 
fiduciary, estate planning, or philanthropic needs, and recommends, 
makes referrals to, or arranges for the provision of financial 
products, services, or other assistance by internal or external 
providers to meet those needs. Notwithstanding the previous sentence, a 
person is only a relationship manager with respect to an account that 
has a balance or value of more than $1,000,000, taking into account the 
aggregation rules described in Sec.  1.1471-5(b)(4)(iii)(A) and (B).
    (107) Reporting Model 1 FFI. The term reporting Model 1 FFI means 
an FFI with respect to which a foreign government or agency thereof 
agrees to obtain and exchange information pursuant to a Model 1 IGA, 
other than an FFI that is treated as a nonparticipating FFI under the 
Model 1 IGA.
    (108) Responsible officer. The term responsible officer means, with 
respect to a participating FFI, an officer of any participating FFI or 
reporting Model 1 FFI in the participating FFI's expanded affiliated 
group with sufficient authority to fulfill the duties of a responsible 
officer described in Sec.  1.1471-4, which include the requirement to 
periodically certify to the IRS regarding the FFI's compliance with its 
FFI agreement. The term responsible officer means, in the case of a 
registered deemed-compliant FFI, an officer of any deemed-compliant FFI 
or participating FFI in the deemed-compliant FFI's expanded affiliated 
group with sufficient authority to ensure that the FFI meets the 
applicable requirements of Sec.  1.1471-5(f). If a participating FFI 
elects to be part of a consolidated compliance program, the term 
responsible officer means an officer of the compliance FI (as described 
in Sec.  1.1471-4(f)) with sufficient authority to fulfill the duties 
of a responsible officer described in Sec.  1.1471-4(f)(2) and (3) on 
behalf of each FFI in the compliance group.
    (109) Restricted distributor. The term restricted distributor means 
an entity described in Sec.  1.1471-5(f)(4).
    (110) Simple trust. The term simple trust means a trust that meets 
the requirements of section 651(a)(1) and (2).

[[Page 5911]]

    (111) Specified insurance company. The term specified insurance 
company has the meaning set forth in Sec.  1.1471-5(e)(1)(iv).
    (112) Specified U.S. person. The term specified U.S. person or 
specified United States person has the meaning set forth in Sec.  
1.1473-1(c).
    (113) Sponsored FFI. The term sponsored FFI means any entity 
described in Sec.  1.1471-5(f)(1)(i)(F) (sponsored investment entities 
and sponsored controlled foreign corporations) or Sec.  1.1471-
5(f)(2)(iii) (sponsored, closely held investment vehicles).
    (114) Sponsored FFI group. The term sponsored FFI group means a 
group of sponsored FFIs that share the same sponsoring entity.
    (115) Sponsoring entity. The term sponsoring entity means an entity 
that registers with the IRS and agrees to perform the due diligence, 
withholding, and reporting obligations of one or more FFIs pursuant to 
Sec.  1.1471-5(f)(1)(i)(F) or (2)(iii).
    (116) Standardized industry code. The term standardized industry 
code means a code that is part of a coding system used by the 
withholding agent or FFI to classify account holders by business type 
for purposes other than U.S. tax purposes and that was implemented by 
the withholding agent by the later of January 1, 2012, or six months 
after the date the withholding agent was formed or organized.
    (117) Standing instructions to pay amounts. The term standing 
instructions to pay amounts means current payment instructions provided 
by the account holder, or an agent of the account holder, that will 
repeat without further instructions being provided by the account 
holder. Therefore, for example, a payment instruction to make an 
isolated payment is not a standing instruction to pay amounts, even if 
the instructions are given one year in advance. However, an instruction 
to make payments indefinitely is a standing instruction to pay amounts 
for the period during which such instructions are in effect, even if 
such instructions are amended after a single payment.
    (118) Subject to withholding. The term subject to withholding, with 
respect to an amount, means an amount for which withholding is required 
under chapter 4 or an amount for which chapter 4 withholding was 
otherwise applied.
    (119) Substantial U.S. owner. The term substantial U.S. owner or 
substantial United States owner has the meaning set forth in Sec.  
1.1473-1(b).
    (120) Territory entity. The term territory entity means any entity 
that is incorporated or organized under the laws of any U.S. territory.
    (121) Territory financial institution. The term territory financial 
institution means a financial institution that is incorporated or 
organized under the laws of any U.S. territory, not including a 
territory entity that is an investment entity but that is not a 
depository institution, custodial institution, or specified insurance 
company.
    (122) Territory financial institution treated as a U.S. person. The 
term territory financial institution treated as a U.S. person means a 
territory financial institution that is treated as a U.S. person under 
Sec.  1.1471-3(a)(3)(iv).
    (123) Territory NFFE. The term territory NFFE means a territory 
entity that is not a financial institution, including a territory 
entity that is an investment entity but is not a depository 
institution, custodial institution, or specified insurance company.
    (124) TIN. The term TIN means the tax identifying number assigned 
to a person under section 6109.
    (125) U.S. account. The term U.S. account or United States account 
has the meaning set forth in Sec.  1.1471-5(a).
    (126) U.S. branch treated as a U.S. person. The term U.S. branch 
treated as a U.S. person means a U.S. branch of a participating FFI or 
registered deemed-compliant FFI that is treated as a U.S. person under 
Sec.  1.1441-1(b)(2)(iv)(A).
    (127) U.S. financial institution. The term U.S. financial 
institution means a financial institution that is a U.S. person, 
including a U.S. branch treated as a U.S. person.
    (128) U.S. indicia. The term U.S. indicia has the meaning set forth 
in Sec.  1.1471-4(c)(5)(iv)(B) when applied to an individual and as set 
forth in Sec.  1.1471-3(e)(4)(v)(A) when applied to an entity.
    (129) U.S. owned foreign entity. The term U.S. owned foreign entity 
or United States owned foreign entity has the meaning set forth in 
Sec.  1.1471-5(c).
    (130) U.S. payee. The term U.S. payee means any payee that is a 
U.S. person.
    (131) U.S. payor. The term U.S. payor means a U.S. payor or U.S. 
middleman as defined in Sec.  1.6049-5(c)(5).
    (132) U.S. person. The term U.S. person or United States person 
means a person described in section 7701(a)(30), the United States 
government (including an agency or instrumentality thereof), a State 
(including an agency or instrumentality thereof), or the District of 
Columbia (including an agency or instrumentality thereof). For purposes 
of the preceding sentence, the determination of whether an insurance 
company is a U.S. person is made without regard to an election by a 
company not licensed to do business in any State to be subject to U.S. 
income tax as if it were a domestic insurance company. Thus, a foreign 
insurance company not licensed to do business in any State that elects 
pursuant to section 953(d) to be subject to U.S. income tax as if it 
were a U.S. insurance company is not a U.S. person.
    (133) U.S. source FDAP income. The term U.S. source FDAP income has 
the meaning set forth in Sec.  1.1473-1(a)(2).
    (134) U.S. territory. The term U.S. territory or possession of the 
United States means American Samoa, Guam, the Northern Mariana Islands, 
Puerto Rico, or the U.S. Virgin Islands.
    (135) U.S. withholding agent. The term U.S. withholding agent means 
a withholding agent that is either a U.S. person or a U.S. branch of a 
foreign person.
    (136) Withholdable payment. The term withholdable payment has the 
meaning set forth in Sec.  1.1473-1(a).
    (137) Withholding. The term withholding means the deduction and 
remittance of tax at the applicable rate from a payment.
    (138) Withholding agent. The term withholding agent has the meaning 
set forth in Sec.  1.1473-1(d).
    (139) Withholding certificate. The term withholding certificate 
means a Form W-8, Form W-9, or any other certificate that under the 
Code or regulations certifies or establishes the chapter 4 status of a 
payee or beneficial owner.
    (140) WP. The term WP or withholding foreign partnership means a 
foreign partnership that has executed the agreement described in Sec.  
1.1441-5(c)(2)(ii).
    (141) Written statement. The term written statement has the meaning 
set forth in Sec.  1.1471-3(c)(4).
    (142) WT. The term WT or withholding foreign trust means a foreign 
grantor trust or foreign simple trust that has executed the agreement 
described in Sec.  1.1441-5(e)(5)(v).
    (c) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 6. Section 1.1471-2 is added to read as follows:


Sec.  1.1471-2  Requirement to deduct and withhold tax on withholdable 
payments to certain FFIs.

    (a) Requirement to withhold on payments to FFIs--(1) General rule 
of withholding. Under section 1471(a), notwithstanding any exemption 
from withholding under any other provision of the Code or regulations, 
a withholding agent must withhold 30

[[Page 5912]]

percent of any withholdable payment made after December 31, 2013, to a 
payee that is an FFI unless either the withholding agent can reliably 
associate the payment with documentation upon which it is permitted to 
rely to treat the payment as exempt from withholding under paragraph 
(a)(4) of this section, or the payment is made under a grandfathered 
obligation that is described in paragraph (b) of this section or 
constitutes gross proceeds from the disposition of such an obligation. 
A withholding agent that is making a payment must determine who the 
payee is under Sec.  1.1471-3(a) with respect to that payment and the 
chapter 4 status of such payee. See Sec.  1.1471-3 for requirements for 
determining the chapter 4 status of a payee, including additional 
documentation requirements where a payment is made to an intermediary 
or flow-through entity that is not the payee. Withholding under this 
section applies without regard to whether the payee receives a 
withholdable payment as a beneficial owner or as an intermediary. See 
paragraph (a)(2)(iv) of this section for a description of the 
withholding requirements imposed on territory financial institutions as 
withholding agents under chapter 4. In the case of a withholdable 
payment to an NFFE, a withholding agent is required to determine 
whether withholding applies under section 1472 and Sec.  1.1472-1. 
Except as otherwise provided in the regulations under chapter 4, a 
withholding obligation arises on the date a payment is made, as 
determined under Sec.  1.1473-1(a).
    (2) Special withholding rules--(i) Requirement to withhold on 
payments of U.S. source FDAP income to participating FFIs that are 
NQIs, NWPs, or NWTs. A withholding agent that, after December 31, 2013, 
makes a payment of U.S. source FDAP income to a participating FFI or 
reporting Model 1 FFI that is an NQI receiving the payment as an 
intermediary, NWP, or NWT must withhold 30 percent of the payment 
unless the withholding is reduced under this paragraph (a)(2)(i). A 
withholding agent is not required to withhold on a payment, or portion 
of a payment, that it can reliably associate, in the manner described 
in Sec.  1.1471-3(c)(2), with a valid intermediary or flow-through 
withholding certificate that meets the requirements of Sec.  1.1471-
3(d)(4) and an FFI withholding statement that meets the requirements of 
Sec.  1.1471-3(c)(3)(iii)(B)(1) and (2) and that allocates the payment 
or portion of the payment to payees for which no withholding is 
required under chapter 4. Further, a withholding agent is not required 
to withhold on a payment that it can reliably associate with 
documentation indicating that the payee is a U.S. branch of a 
participating FFI that is treated as a U.S. person under Sec.  1.1441-
1(b)(2)(iv)(A).
    (ii) Residual withholding responsibility of intermediaries and 
flow-through entities. An intermediary or flow-through entity that 
receives a withholdable payment after December 31, 2013, is required to 
withhold on such payment to the extent required under chapter 4. 
Notwithstanding the previous sentence, an intermediary or flow-through 
entity is not required to withhold if another withholding agent has 
withheld the full amount required. Further, an NQI, NWP, or NWT is not 
required to withhold with respect to a withholdable payment under 
chapter 4 if it has provided a valid intermediary withholding 
certificate or flow-through withholding certificate and all of the 
information required by Sec.  1.1471-3(c)(3)(iii), and it does not 
know, and has no reason to know, that another withholding agent failed 
to withhold the correct amount. A QI's, WP's, or WT's obligation to 
withhold and report is determined in accordance with its QI withholding 
agreement, WP agreement, or WT agreement.
    (iii) Requirement to withhold if a participating FFI or registered 
deemed-compliant FFI makes an election to be withheld upon. A person 
that otherwise would be a payee with respect to a payment but that 
makes an election to be withheld upon does not agree to accept primary 
withholding responsibility for the payment under chapter 3 or 4. 
Accordingly, such person cannot be treated as the payee and the 
withholding agent must determine whether it must withhold based on the 
chapter 4 status of the payee on whose behalf the person is receiving 
the payment. The election to be withheld upon is only available to the 
extent provided in paragraph (a)(2)(iii)(A) and (B) of this section. 
The election is not available to an entity that is required to accept 
primary withholding responsibility for the payment, such as a WP or WT 
receiving a payment of U.S. source FDAP income, or an entity that 
already must be withheld upon because it may not accept primary 
withholding responsibility for the payment and, as such, already must 
pass up documentation with respect to the payee to the withholding 
agent, such as a participating FFI that is an NQI receiving a payment 
of U.S. source FDAP income.
    (A) Election to be withheld upon for U.S. source FDAP income. A 
withholding agent is required to withhold with respect to a payment, or 
portion of a payment, that is U.S. source FDAP income subject to 
withholding that is made after December 31, 2013, to a QI that has 
elected in accordance with this paragraph to be withheld upon. In such 
case, the withholding agent must withhold 30 percent of the portion of 
the payment that is allocable, pursuant to a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B) provided by the QI, to 
recalcitrant account holders and nonparticipating FFIs. If no such 
allocation information is provided, the withholding agent must apply 
the presumption rules of Sec.  1.1471-3(f) to determine the chapter 4 
status of the payee. A QI that is an FFI and that makes the election to 
be withheld upon with respect to a payment of U.S. source FDAP income 
may not assume primary withholding responsibility under chapter 3 for 
that payment. Conversely, a QI that is an FFI and that does not make 
the election to be withheld upon with respect to a payment of U.S. 
source FDAP income is required to assume primary withholding 
responsibility under chapter 3 for that payment. The election to be 
withheld upon is only available with respect to a payment of U.S. 
source FDAP income if--
    (1) The withholding agent is a participating FFI, reporting Model 1 
FFI, QI, or a U.S. withholding agent;
    (2) The person who receives the payment is a participating FFI or 
registered deemed-compliant FFI that acts as a QI with respect to the 
payment and that is not a QI branch of a U.S. financial institution;
    (3) The person who receives the payment provides the withholding 
agent, at or before the time of the payment, with a valid intermediary 
withholding certificate with respect to the payment that notifies the 
withholding agent that it has elected to be withheld upon, certifies 
that it is not assuming primary withholding responsibility under 
chapter 3, and designates whether such election is made for all 
accounts held with the withholding agent or for the specific accounts 
identified on the withholding certificate; and
    (4) The intermediary withholding certificate is accompanied by a 
withholding statement described in Sec.  1.1471-3(c)(3)(iii)(B).
    (B) Election to be withheld upon for gross proceeds. [Reserved].
    (iv) Withholding obligation of a territory financial institution. A 
territory financial institution is a withholding agent with respect to 
a withholdable payment if it is a withholding agent under Sec.  1.1473-
1(d) with respect to

[[Page 5913]]

such payment. A territory financial institution that is a flow-through 
entity or that acts as an intermediary with respect to a withholdable 
payment has an obligation to withhold if it agrees to be treated as a 
U.S. person with respect to the payment for purposes of both chapter 4 
and Sec.  1.1441-1(b)(2)(iv)(A). A territory financial institution that 
is a flow-through entity or that acts as an intermediary with respect 
to a withholdable payment is not required to withhold under paragraph 
(a)(1) of this section, however, if it has provided the withholding 
agent that is a U.S. withholding agent, participating FFI, reporting 
Model 1 FFI, or QI with all of the documentation described in Sec.  
1.1471-3(c)(3)(iii) (in which it has not agreed to be treated as a U.S. 
person with respect to the payment), and it does not know, or have 
reason to know, that another withholding agent failed to withhold the 
correct amount or failed to report the payment correctly under Sec.  
1.1474-1(d).
    (v) Withholding obligation of a foreign branch of a U.S. financial 
institution. Generally, a foreign branch of a U.S. financial 
institution is a withholding agent and is not an FFI. However, a QI 
branch of a U.S. financial institution is both a withholding agent and 
either a participating FFI or a registered deemed-compliant FFI. 
Accordingly, a QI branch of a U.S. financial institution must withhold 
in accordance with this section in addition to meeting its obligations 
under either Sec.  1.1471-4(b) and its FFI agreement or Sec.  1.1471-
5(f). Similarly, a foreign branch of a U.S. financial institution that 
is also a reporting Model 1 FFI is both a withholding agent and a 
registered deemed-compliant FFI. Accordingly, a foreign branch of a 
U.S. financial institution that is a reporting Model 1 FFI must 
withhold in accordance with this section. A foreign branch of a U.S. 
financial institution that is not a QI is not permitted to make an 
election to be withheld upon.
    (vi) Payments of gross proceeds. [Reserved].
    (3) Coordination of withholding under sections 1471(a) and (b). The 
following entities are deemed to satisfy their withholding obligations 
under section 1471(a) and this section: participating FFIs that comply 
with the withholding requirements of Sec.  1.1471-4(b); exempt 
beneficial owners; section 501(c) entities described in Sec.  1.1471-
5(e)(5)(v); and nonprofit organizations described in Sec.  1.1471-
5(e)(5)(vi). See Sec.  1.1471-5(f) for when a deemed-compliant FFI is 
deemed to satisfy its withholding obligations under section 1471(a) and 
this section.
    (4) Payments for which no withholding is required. A withholding 
agent that has determined, in accordance with the documentation 
requirements and other rules provided in Sec.  1.1471-3, that the payee 
of a withholdable payment is a foreign entity must determine whether 
the payment is exempt from withholding. Paragraphs (a)(4)(i) through 
(viii) of this section describe the circumstances in which a 
withholdable payment is not subject to withholding under section 
1471(a) and this section.
    (i) Exception to withholding if the withholding agent lacks 
control, custody, or knowledge--(A) In general. A withholding agent 
that is not related to the payee or beneficial owner has an obligation 
to withhold under section 1471 only to the extent that, at any time 
between the date that the obligation to withhold would arise (but for 
the provisions of this paragraph (a)(4)(i)) and the due date for filing 
the return on Form 1042 (including extensions) for the year in which 
the payment occurs, it has control over or custody of money or property 
owned by the payee or beneficial owner from which to withhold an amount 
and has knowledge of the facts that give rise to the payment. The 
exemption from the obligation to withhold under this paragraph 
(a)(4)(i) does not apply, however, to payments with respect to stock or 
other securities or if the lack of control or custody of money or 
property from which to withhold is part of a pre-arranged plan known to 
the withholding agent to avoid withholding under section 1471 or 1472. 
A withholding agent does not lack control over money or property for 
purposes of this paragraph (a)(4)(i) if the withholding agent directs 
another party to make the payment. Thus, for example, a principal does 
not cease to have control over a payment when it contracts with a 
paying agent to make the payments to its account holders in lieu of 
paying the account holders directly. Further, a withholding agent does 
not lack knowledge of the facts that give rise to a payment merely 
because the withholding agent does not know the character or source of 
the payment for U.S. tax purposes. See paragraph (a)(5) of this section 
for rules addressing a withholding agent's obligations when the 
withholding agent has knowledge of the facts that give rise to the 
payment, but the character or source of the payment is not known. For 
purposes of this paragraph (a)(4)(i), a withholding agent is related to 
the payee or beneficial owner if it is related within the meaning of 
section 482. Any exemption from withholding pursuant to this paragraph 
(a)(4)(i) applies without a requirement that documentation be furnished 
to the withholding agent. The special rules set forth in Sec.  1.1441-
2(d)(2) through (4), regarding the obligation of a withholding agent 
with respect to cancellation of debt, the satisfaction of a tax 
liability following underwithholding by a withholding agent, and 
amounts described in Sec.  1.860G-3(b)(1) (regarding certain 
partnership allocations of REMIC net income with respect to a REMIC 
residual interest) also apply for purposes of chapter 4.

    (B) Example. A, an individual, owns stock in DC, a domestic 
corporation, through a custodian, Bank 1, that is a participating 
FFI. A also has a money market account at Bank 2, which is also a 
participating FFI. DC pays a dividend of $1,000 that is deposited in 
A's custodial account at Bank 1. A then directs Bank 1 to transfer 
$1,000 to A's money market account at Bank 2. With respect to the 
payment of the dividend into A's custodial account with Bank 1, both 
DC and Bank 1 are withholding agents making a withholdable payment 
for which they have custody, control, and knowledge. See Sec.  
1.1473-1(a)(2)(vii)(B) and (d). Therefore, both DC and Bank 1 have 
an obligation to withhold on the payment unless they can reliably 
associate the payment with documentation sufficient to treat the 
respective payees as not subject to withholding under chapter 4. 
With respect to the wire transfer of $1,000 from A's account at Bank 
1 to A's account at Bank 2, neither Bank 1 nor Bank 2 is required to 
withhold with respect to the transfer because neither bank has 
knowledge of the facts that gave rise to the payment. Even though 
Bank 1 is a custodian with respect to A's interest in DC and has 
knowledge regarding the $1,000 dividend paid to A, once Bank 1 
credits the $1,000 dividend to A's account, the $1,000 becomes A's 
property. When A transfers the $1,000 to its account at Bank 2, this 
constitutes a separate payment about which Bank 1 has no knowledge 
regarding the type of payment made. Further, Bank 2 only has 
knowledge that it receives $1,000 to be credited to A's account but 
has no knowledge regarding the type of payment made. Accordingly, 
Bank 1 and Bank 2 have no withholding obligation with respect to the 
transfer from A's custodial account at Bank 1 to A's money market 
account at Bank 2.

    (ii) Exception to withholding for certain payments made prior to 
January 1, 2016 (transitional)--(A) In general. For any withholdable 
payment made prior to January 1, 2016, with respect to a preexisting 
obligation for which a withholding agent does not have documentation 
indicating the payee's status as a nonparticipating FFI, the 
withholding agent is not required to withhold under this section and 
section 1471(a) unless the payee is a prima facie FFI.

[[Page 5914]]

    (B) Prima facie FFIs. If the payee is a prima facie FFI, the 
withholding agent must treat the payee as a nonparticipating FFI 
beginning on July 1, 2014, until the date the withholding agent obtains 
documentation sufficient to establish a different chapter 4 status of 
the payee. A prima facie FFI means any payee if--
    (1) The withholding agent has available as part of its 
electronically searchable information a designation for the payee as a 
QI or NQI; or
    (2) For an account maintained in the United States, the payee is 
presumed to be a foreign entity under Sec.  1.1471-3(f) or is 
documented as a foreign entity for purposes of chapter 3 or 61, and the 
withholding agent has recorded as part of its electronically searchable 
information one of the following North American Industry Classification 
System or Standard Industrial Classification codes indicating that the 
payee is a financial institution:
    (i) Commercial Banking (NAICS 522110).
    (ii) Savings Institutions (NAICS 522120).
    (iii) Credit Unions (NAICS 522130).
    (iv) Other Depositary Credit Intermediation (NAICS 522190).
    (v) Investment Banking and Securities Dealing (NAICS 523110).
    (vi) Securities Brokerage (NAICS 523120).
    (vii) Commodity Contracts Dealing (NAICS 523130).
    (viii) Commodity Contracts Brokerage (NAICS 523140).
    (ix) Miscellaneous Financial Investment Activities (NAICS 523999).
    (x) Open-End Investment Funds (NAICS 525910).
    (xi) Commercial Banks, NEC (SIC 6029).
    (xii) Branches and Agencies of Foreign Banks (branches) (SIC 6081).
    (xiii) Foreign Trade and International Banking Institutions (SIC 
6082).
    (xiv) Asset-Backed Securities (SIC 6189).
    (xv) Security & Commodity Brokers, Dealers, Exchanges & Services 
(SIC 6200).
    (xvi) Security Brokers, Dealers & Flotation Companies (SIC 6211).
    (xvii) Commodity Contracts Brokers & Dealers (SIC 6221).
    (xviii) Unit Investment Trusts, Face-Amount Certificate Offices, 
and Closed-End Management Investment Offices (SIC 6726).
    (iii) Payments to a participating FFI. Except to the extent 
provided in paragraph (a)(2)(i) of this section, a withholding agent is 
not required to withhold under section 1471(a) and this section on a 
withholdable payment made to a payee that the withholding agent can 
treat as a participating FFI in accordance with Sec.  1.1471-3(d)(3). 
For this purpose, a limited branch of a participating FFI is treated as 
a nonparticipating FFI.
    (iv) Payments to a deemed-compliant FFI. Except to the extent 
provided in paragraph (a)(2)(i) or (iii) of this section, a withholding 
agent is not required to withhold under section 1471(a) and this 
section on a withholdable payment made to a payee that the withholding 
agent can treat as a deemed-compliant FFI in accordance with Sec.  
1.1471-3(d)(4) through (7). For this purpose, a limited branch of a 
deemed-compliant FFI is treated as a nonparticipating FFI.
    (v) Payments to an exempt beneficial owner. A withholding agent is 
not required to withhold under section 1471(a) and this section on a 
withholdable payment to the extent that the withholding agent can 
reliably associate the payment with documentation to determine the 
portion of the payment that is allocable to an exempt beneficial owner 
in accordance with Sec.  1.1471-3(d)(8). For example, a withholding 
agent is not required to withhold under this section on a withholdable 
payment made to a payee that is an exempt beneficial owner with respect 
to the payment, to a nonparticipating FFI to the extent that the 
nonparticipating FFI receives the payment as an intermediary on behalf 
of one or more of its account holders that are exempt beneficial 
owners, or to a flow-through entity to the extent that the flow-through 
entity receives the payment with respect to one or more of its 
partners, beneficiaries, or owners (as applicable) that are exempt 
beneficial owners. See Sec.  1.1471-3(d)(8)(ii) for special rules for a 
withholding agent to determine the portion of a withholdable payment 
that is beneficially owned by an exempt beneficial owner in the case of 
a payment made to a nonparticipating FFI.
    (vi) Payments to a territory financial institution. A withholding 
agent is not required to withhold under section 1471(a) and this 
section on a withholdable payment made to a payee that the withholding 
agent can treat as a territory financial institution that beneficially 
owns the payment in accordance with Sec.  1.1471-3(d)(10)(i). A 
withholding agent also is not required to withhold under this section 
on a withholdable payment that the withholding agent can treat, in 
accordance with Sec.  1.1471-3(d)(10)(ii), as made to a territory 
financial institution that is a flow-through entity or that acts as an 
intermediary with respect to the payment and that has agreed to be 
treated as a U.S. person for purposes of chapters 3 and 4 with respect 
to the payment. A territory financial institution's agreement to be 
treated as a U.S. person for purposes of this section must be evidenced 
by a withholding certificate described in Sec.  1.1471-3(c)(3)(iii)(F) 
furnished by the territory financial institution to the withholding 
agent.
    (vii) Payments to an account held with a clearing organization with 
FATCA-compliant membership. [Reserved].
    (viii) Payments to certain excepted accounts. A withholding agent 
is not required to withhold under section 1471(a) and this section on a 
withholdable payment made to an account described in Sec.  1.1471-
5(b)(2).
    (5) Withholding requirements if source or character of payment is 
unknown--(i) General rule. If a withholding agent has knowledge of the 
facts that give rise to a payment but is unable to determine at the 
time of payment the character of the payment sufficiently to determine 
whether it is a withholdable payment, such payment must be treated as a 
withholdable payment. If a withholding agent has knowledge of the facts 
that give rise to a payment but is unable to determine at the time of 
payment the source of the payment, such payment must be treated as U.S. 
source income. For example, if a withholding agent does not know at the 
time of payment the amount of the payment that is a withholdable 
payment, because that calculation depends on facts that are not known 
at the time of payment (for example, because the withholding agent does 
not know whether services were performed in the United States or 
whether the payment constitutes income to the recipient) the 
withholding agent must withhold an amount necessary to ensure that the 
amount withheld is not less than 30 percent of the amount that could be 
a withholdable payment, subject to the limitation that the withheld 
amount must not exceed 30 percent of the amount paid. Notwithstanding 
this paragraph (a)(5), a withholding agent may presume a payment to be 
effectively connected with the conduct of a trade or business in the 
United States, and thus, not a withholdable payment, if it can do so 
under Sec.  1.1471-3(f)(6) (regarding payments to certain U.S. 
branches).
    (ii) Optional escrow procedure. With respect to a payment described 
in paragraph (a)(5) of this section, the withholding agent may elect to 
retain 30 percent of the payment to hold in escrow until the earlier of 
the date that the amount of the withholdable

[[Page 5915]]

payment can be determined or one year from the date the amount is 
placed in escrow, at which time either the withholding becomes due 
under this section or, to the extent that it is determined that the 
payment is of a type for which no withholding is required, the escrowed 
amount must be paid to the payee.
    (b) Grandfathered obligations--(1) Grandfathered treatment of 
outstanding obligations. Notwithstanding Sec.  1.1473-1(a), a 
withholdable payment does not include any payment made under a 
grandfathered obligation described in paragraph (b)(2)(i)(A) of this 
section, or any gross proceeds from the disposition of such an 
obligation. Notwithstanding Sec.  1.1471-5(h), a foreign passthru 
payment does not include any payment made under a grandfathered 
obligation described in paragraph (b)(2)(i)(A) or (B) of this section, 
or any gross proceeds from the disposition of such an obligation. A 
premium paid with regard to an insurance contract or annuity contract 
that is a grandfathered obligation is treated as a payment made under a 
grandfathered obligation.
    (2) Definitions. The following definitions apply solely for 
purposes of this paragraph (b).
    (i) Grandfathered obligation--(A) The term grandfathered obligation 
means--
    (1) Any obligation outstanding on January 1, 2014;
    (2) Any obligation that gives rise to a withholdable payment solely 
because the obligation is treated as giving rise to a dividend 
equivalent pursuant to section 871(m) and the regulations thereunder, 
provided that the obligation is executed on or before the date that is 
six months after the date on which obligations of its type are first 
treated as giving rise to dividend equivalents; and
    (3) Any agreement requiring a secured party to make a payment with 
respect to, or to repay, collateral posted to secure a grandfathered 
obligation. If collateral (or a pool of collateral) secures both 
grandfathered obligations and obligations that are not grandfathered, 
the collateral posted to secure the grandfathered obligations must be 
determined by allocating (pro rata by value) the collateral (or each 
item comprising the pool of collateral) to all outstanding obligations 
secured by the collateral (or pool of collateral).
    (B) Solely for purposes of a foreign passthru payment, the term 
grandfathered obligation also includes any obligation that is executed 
on or before the date that is six months after the date on which final 
regulations defining the term foreign passthru payment are filed with 
the Federal Register.
    (ii) Obligation--(A) Except as otherwise provided in paragraph 
(b)(2)(ii)(B) of this section, the term obligation means any legally 
binding agreement or instrument. An obligation for purposes of this 
paragraph (b)(2)(i) includes, for example--
    (1) A debt instrument (for example, a bond, guaranteed investment 
certificate, or term deposit);
    (2) An agreement to extend credit for a fixed term (for example, a 
line of credit or a revolving credit facility), provided that the 
agreement as of its issue date fixes the material terms (including a 
stated maturity date) under which the credit will be provided;
    (3) A derivatives transaction entered into between counterparties 
under an ISDA Master Agreement that is evidenced by a confirmation;
    (4) A life insurance contract under which the entire contract value 
is payable no later than upon the death of the individual(s) insured 
under the contract; and
    (5) An immediate annuity contract payable for a period certain or 
for the life of the annuitant.
    (B) An obligation for purposes of this paragraph (b)(2)(ii) does 
not include any legal agreement or instrument that--
    (1) Is treated as equity for U.S. tax purposes;
    (2) Lacks a stated expiration or term (for example, a savings 
deposit or demand deposit, a deferred annuity contract, or a life 
insurance contract or annuity contract that permits a substitution of a 
new individual as the insured or as the annuitant under the contract);
    (3) Is a brokerage agreement, custodial agreement, investment 
linked insurance contract, investment linked annuity contract, or 
similar agreement to hold financial assets for the account of others 
and to make and receive payments of income and other amounts with 
respect to such assets; or
    (4) Is a master agreement that merely sets forth standard terms and 
conditions that are intended to apply to a series of transactions 
between parties but that does not set forth all of the specific terms 
necessary to conclude a particular transaction.
    (iii) Date outstanding. Except as provided in the following 
sentence, an obligation that constitutes indebtedness for U.S. tax 
purposes is outstanding on the date provided in paragraph (b)(2)(i) if 
it has an issue date before such date. In all other cases, including an 
agreement described in paragraph (b)(2)(ii)(A)(2) of this section, an 
obligation is outstanding on the date provided in paragraph (b)(2)(i) 
if a legally binding agreement establishing the obligation was executed 
between the parties to the agreement before such date. Any material 
modification of an outstanding obligation will result in the obligation 
being treated as newly issued or executed as of the effective date of 
such modification.
    (iv) Material modification. In the case of an obligation that 
constitutes indebtedness for U.S. tax purposes, a material modification 
is any significant modification of the debt instrument as defined in 
Sec.  1.1001-3(e). In all other cases, whether a modification of an 
obligation is material is determined based on the facts and 
circumstances.
    (3) Application to flow-through entities--(i) Partnerships. A 
payment made under a grandfathered obligation includes a payment made 
to a partnership with respect to such obligation and a payment made 
with respect to a partnership's disposition of such obligation. A 
payment made under a grandfathered obligation also includes the income 
from such obligation that is includible in the gross income of a 
partner with respect to a capital or profits interest in the 
partnership and the gross proceeds allocated to a partner from the 
disposition of such obligation as determined under Sec.  1.1473-
1(a)(5)(vii).
    (ii) Simple trusts. A payment made under a grandfathered obligation 
includes a payment made to a simple trust with respect to such 
obligation, including a payment made with respect to a simple trust's 
disposition of such obligation. A payment made under a grandfathered 
obligation also includes income from such obligation that is includible 
in the income of a beneficiary and further includes a beneficiary's 
share of the gross proceeds from a disposition of such obligation as 
determined under Sec.  1.1473-1(a)(5)(vii).
    (iii) Grantor trusts. A payment made under a grandfathered 
obligation includes a payment made to a grantor trust with respect to 
such obligation, including a payment made with respect to the trust's 
disposition of such obligation. A payment made under a grandfathered 
obligation also includes income from such obligation that is includible 
in the gross income of a person that is treated as an owner of the 
trust and the gross proceeds from the disposition of such obligation to 
the extent such owner is treated as owning the portion of the trust 
that consists of the obligation.
    (4) Determination by withholding agent of grandfathered treatment--
(i) In general. A withholding agent other than the issuer of the 
obligation (or agent of the issuer) may, absent actual knowledge, rely 
on a written statement

[[Page 5916]]

by the issuer of the obligation to determine if such obligation meets 
the requirements for grandfathered treatment provided under this 
paragraph (b).
    (ii) Determination of material modification. For purposes of 
paragraph (b)(2)(iv) of this section (defining material modification), 
a withholding agent is required to treat a modification of an 
obligation as material only if the withholding agent knows or has 
reason to know that a material modification has occurred with respect 
to the obligation. A withholding agent, other than the issuer of the 
obligation (or agent of the issuer), has reason to know that a material 
modification has occurred with respect to an obligation if the 
withholding agent receives a disclosure from the issuer of the 
obligation stating that there has been a material modification to such 
obligation.
    (iii) Record retention. A withholding agent that relies on a 
document provided by the issuer of an obligation as described in 
paragraph (b)(4)(i) or (ii) of this section must retain such document 
in its records for the applicable period of limitations on assessment 
and collection with respect to amounts paid under the obligation or 
from disposition of the obligation.
    (c) Effective/applicability date. This section generally applies on 
January 28, 2013. For other dates of applicability, see Sec. Sec.  
1.1471-2(a)(1); 1.1471-2(a)(2)(i), (ii), (iii)(A); 1.1471-2(a)(4)(ii).

0
Par. 7. Section 1.1471-3 is added to read as follows:


Sec.  1.1471-3  Identification of payee.

    (a) Payee defined--(1) In general. Except as otherwise provided in 
this paragraph (a), for purposes of chapter 4 a payee is the person to 
whom a payment is made, regardless of whether such person is the 
beneficial owner of the amount.
    (2) Payee with respect to a financial account. For purposes of 
payments made to a financial account and except as otherwise provided 
in paragraph (a)(3) of this section, the payee is the holder of the 
financial account.
    (3) Exceptions--(i) Certain foreign agents or intermediaries--(A) 
Except as otherwise provided in paragraphs (a)(3)(iv) and (vi) of this 
section (applicable to territory financial institutions and certain 
U.S. branches), a foreign person that is acting as an agent or 
intermediary with respect to a payment in accordance with paragraph 
(b)(1) of this section is not the payee if such foreign person is--
    (1) An NFFE, unless the NFFE is a QI that has assumed primary 
withholding responsibility; or
    (2) In the case of a payment of U.S. source FDAP income, a 
participating FFI, deemed-compliant FFI, or restricted distributor, 
unless the participating FFI, deemed-compliant FFI, or restricted 
distributor is a QI that has assumed primary withholding 
responsibility.
    (B) In the case of an agent or intermediary described in paragraph 
(a)(3)(i)(A) of this section, the payee is the person or persons for 
whom the agent or intermediary collects the payment. Thus, for example, 
the payee of a payment of U.S. source FDAP income that the withholding 
agent can reliably associate with a withholding certificate from a QI 
that does not assume primary withholding responsibility with respect to 
the payment under chapter 3, or a payment to a participating FFI that 
is an NQI, is the person or persons for whom the QI or NQI acts.
    (ii) Foreign flow-through entity--(A) A foreign entity that is a 
flow-through entity is a payee with respect to a payment only if the 
flow-through entity is--
    (1) An FFI that is not a participating FFI or deemed-compliant FFI, 
or restricted distributor receiving a payment of U.S. source FDAP 
income;
    (2) An excepted NFFE that is not acting as an agent or intermediary 
with respect to the payment;
    (3) A WP or WT that is not acting as an agent or intermediary with 
respect to the payment; or
    (4) Receiving income that is (or is deemed to be) effectively 
connected with the conduct of a trade or business in the United States, 
or receiving a payment of gross proceeds from the sale of property that 
can produce income that is effectively connected with the conduct of a 
trade or business in the United States and that is excluded from the 
definition of a withholdable payment under Sec.  1.1473-1(a)(4).
    (B) A withholding agent that makes a withholdable payment to a 
flow-through entity that is not described in paragraphs 
(a)(3)(ii)(A)(1) through (3) of this section will be required to treat 
the partner, beneficiary, or owner (as applicable) as the payee 
(looking through partners, beneficiaries, and owners that are 
themselves flow-through entities that are not described in paragraphs 
(a)(3)(ii)(A)(1) through (3)).
    (iii) U.S. intermediary or agent of a foreign person. A withholding 
agent that makes a withholdable payment to a U.S. person and has actual 
knowledge that the person receiving the payment is acting as an 
intermediary or agent of a foreign person with respect to the payment 
must treat such foreign person, and not the intermediary or agent, as 
the payee of such payment. Notwithstanding the previous sentence, a 
withholding agent that makes a withholdable payment to a U.S. financial 
institution that is acting as an intermediary or agent with respect to 
the payment on behalf of one or more foreign persons may treat the U.S. 
financial institution as the payee if the withholding agent does not 
have reason to know that the U.S. financial institution will not comply 
with its obligations to withhold under sections 1471 and 1472.
    (iv) Territory financial institution. A withholding agent that 
makes a withholdable payment to a territory financial institution that 
is a flow-through entity or is acting as an intermediary or agent with 
respect to the payment may treat the territory financial institution as 
the payee only if the territory financial institution has agreed (as 
evidenced by a withholding certificate described in paragraphs 
(c)(3)(iii)(A) and (F) of this section) to be treated as a U.S. person 
with respect to the payment for purposes of both chapters 3 and 4. In 
all other cases, the withholding agent must treat as the payee the 
partner, beneficiary, or owner (as applicable) of the territory 
financial institution that is a flow-through entity (looking through 
partners, beneficiaries, and owners that are themselves flow-through 
entities that are not described in paragraphs (a)(3)(ii)(A)(1) through 
(3)) or the person on whose behalf the territory financial institution 
is acting.
    (v) Disregarded entity or branch. Except as otherwise provided in 
paragraph (a)(3)(v) through (vii) of this section, a withholding agent 
that makes a withholdable payment to an entity that is disregarded for 
U.S. federal tax purposes under Sec.  301.7701-2(c)(2)(i) of this 
chapter as an entity separate from its single owner must treat the 
single owner as the payee. Notwithstanding the previous sentence, a 
withholding agent that makes a payment to a limited branch will be 
required to treat the payment as being made to a nonparticipating FFI.
    (vi) U.S. branch of certain foreign banks or foreign insurance 
companies. A withholdable payment to a U.S. branch of either a 
participating FFI or registered deemed-compliant FFI is a payment to a 
U.S. person if the U.S. branch is treated as a U.S. person for purposes 
of Sec.  1.1441-1(b)(2)(iv). In such case the U.S. branch is treated as 
the payee. A U.S. branch, however, that is treated as a U.S. person 
under Sec.  1.1441-1(b)(2)(iv) is not treated as a U.S. person for 
purposes of the withholding certificate it may provide to a

[[Page 5917]]

withholding agent for purposes of chapter 4. Accordingly, a U.S. branch 
of either a participating FFI or registered deemed-compliant FFI must 
furnish a withholding certificate on a Form W-8 to certify its chapter 
4 status (and not a Form W-9). See also paragraph (f)(6) for the rules 
under which a withholding agent can presume a payment constitutes 
income that is effectively connected with a U.S. trade or business. A 
U.S. branch of either a participating FFI or registered deemed-
compliant FFI that is treated as a U.S. person for purposes of chapter 
3 may not make an election to be withheld upon, as described in section 
1471(b)(3) and Sec.  1.1471-2(a)(2)(iii), for purposes of chapter 4. 
See Sec.  1.1471-4(c)(2)(v) for the rule requiring a U.S. branch to 
apply the due diligence rules applicable to a U.S. withholding agent in 
lieu of those otherwise applicable to a participating FFI. See Sec.  
1.1471-4(d) for rules for when a U.S. branch of a participating FFI is 
required to report as a U.S. person.
    (vii) Foreign branch of a U.S. person. A payment to a foreign 
branch of a U.S. person is generally a payment to a U.S. payee. 
However, a payment to a foreign branch of a U.S. financial institution 
will be treated as a payment to an FFI if the foreign branch is a QI 
that is acting as an intermediary with respect to the payment. 
Therefore, a foreign branch that is a QI will provide the withholding 
agent with an intermediary withholding certificate and the withholding 
agent will report the payment as having been made to the foreign branch 
on a Form 1042-S.
    (b) Determination of payee's status. Except as otherwise provided 
in this section, a withholding agent must base its determination of the 
chapter 4 status of a payee on documentation that the withholding agent 
can reliably associate with such payment. If a withholding agent makes 
a payment to a person that is not the payee, the withholding agent will 
be required to determine the chapter 4 status of each intermediary or 
flow-through entity in the payment chain until the withholding agent is 
able to identify the payee. Paragraph (c) of this section provides 
rules for when a withholding agent can reliably associate a payment 
with appropriate documentation. Paragraph (d) of this section provides 
documentation requirements applicable to each class of payees, 
including exceptions for payments made with respect to offshore 
obligations or preexisting obligations. Paragraph (e) provides 
standards for determining when a withholding agent will be considered 
to have reason to know that a claim of exemption from withholding is 
unreliable or incorrect. Paragraph (f) of this section provides 
presumptions that apply for purposes of determining a payee's chapter 4 
status in the absence of documentation or if the documentation provided 
is unreliable or incorrect.
    (1) Determining whether a payment is received by an intermediary. A 
withholding agent must treat the person who receives a payment as an 
intermediary if it can reliably associate the payment with a valid 
intermediary withholding certificate on which the person who receives 
the payment claims to be a QI or NQI. A U.S. person's foreign branch 
that is acting in its capacity as a QI is treated as a foreign 
intermediary. A withholding agent that makes a payment with respect to 
an offshore obligation must also treat the person who receives the 
payment as an intermediary if the person has provided written 
notification, whether or not such notification is signed, that it 
accepts the payment on behalf of another person or persons. A 
withholding agent may rely on the type of certificate furnished as 
determinative of whether the person who receives the payment is an 
intermediary, unless the withholding agent knows or has reason to know 
that the certificate is incorrect. For example, a withholding agent 
that receives a beneficial owner withholding certificate from an FFI 
may treat the FFI as the beneficial owner unless it has information in 
its records that would indicate otherwise or the certificate contains 
information that is not consistent with beneficial owner status (for 
example, sub-account numbers that do not correspond to accounts 
maintained by the withholding agent for such person or names of one or 
more persons other than the person submitting the withholding 
certificate). If the FFI receives a payment in part as a beneficial 
owner and in part as an intermediary, the withholding agent may request 
that the FFI furnish two certificates, that is, a beneficial owner 
certificate for the amounts it receives as a beneficial owner, and an 
intermediary withholding certificate for the amounts it receives as an 
intermediary. A withholding agent that cannot reliably associate a 
payment with documentation sufficient to treat the person who receives 
the payment as an intermediary or as other than an intermediary 
pursuant to this paragraph (b)(1) must follow the presumption rules set 
forth in paragraph (f)(5) of this section to determine whether it must 
treat the person who receives the payment as an intermediary. A 
determination that a payment is made to an intermediary under this 
paragraph (b)(1) is not a determination that the payment can be 
reliably associated with documentation. See paragraph (c)(2) of this 
section for rules on reliably associating a payment with documentation 
if such payment is made through an intermediary.
    (2) Determination of entity type. A person's entity classification 
for purposes of chapter 4 is the person's entity classification for 
U.S. federal income tax purposes. Thus, for example, an entity that is 
disregarded as a legal entity in its country of organization or an 
arrangement that does not have a legal personality and is not a 
juridical person in the country in which it was organized will be 
treated as an entity for purposes of chapter 4 if it is an entity for 
U.S. federal income tax purposes. A withholding agent may rely upon a 
person's entity classification contained in a valid Form W-8 or W-9 if 
the withholding agent has no reason to know that the entity 
classification is incorrect. A withholding agent that makes a payment 
with respect to an offshore obligation may also rely upon a written 
notification provided by the person who receives the payment, 
regardless of whether such notification is signed, that indicates the 
person's entity classification (other than as a QI, WP, or WT) unless 
the withholding agent has reason to know that the entity classification 
indicated by the person who receives the payment is incorrect. A 
withholding agent may not rely on a person's claim of classification 
other than as a corporation if the person's name indicates that the 
person is a per se corporation described in Sec.  301.7701-2(b)(8) of 
this chapter unless the certificate or written statement contains a 
statement that the person is a grandfathered per se corporation 
described in Sec.  301.7701-2(b)(8) and that its grandfathered status 
has not been terminated.
    (3) Determination of whether the payment is made to a QI, WP, or 
WT. A withholding agent may treat the person who receives a payment as 
a QI, WP, or WT if the withholding agent can reliably associate the 
payment with a valid Form W-8IMY, as described in paragraph (c)(3)(iii) 
of this section, that indicates that the person who receives the 
payment is a QI, WP, or WT, and the form contains the person's GIIN, in 
the case of a QI or a WP or WT that is an FFI, or the person's QI-EIN, 
WP-EIN, or WT-EIN in the case of a QI, WP, or WT that is not an FFI.
    (4) Determination of whether the payee is receiving effectively 
connected income. A withholding agent may treat a payment as being made 
to a payee that is receiving income that is effectively

[[Page 5918]]

connected with a trade or business in the United States, or gross 
proceeds from the sale of property that can produce income that is 
effectively connected with the conduct of a trade or business in the 
United States, if it can reliably associate the payment with a valid 
Form W-8ECI described in paragraph (c)(3)(v) of this section or if it 
can do so under the presumption rule in paragraph (f)(6) of this 
section.
    (c) Rules for reliably associating a payment with a withholding 
certificate or other appropriate documentation--(1) In general. A 
withholding agent can reliably associate a withholdable payment with 
valid documentation if, prior to the payment, it has obtained (either 
directly or through an agent) valid documentation appropriate to the 
payee's chapter 4 status as described in paragraph (d) of this section, 
it can reliably determine how much of the payment relates to the valid 
documentation, and it does not know or have reason to know that any of 
the information, certifications, or statements in, or associated with, 
the documentation are unreliable or incorrect. Thus, a withholding 
agent cannot reliably associate a withholdable payment with valid 
documentation provided by a payee to the extent such documentation 
appears unreliable or incorrect with respect to the claims made, or to 
the extent that information required to allocate all or a portion of 
the payment to each payee is unreliable or incorrect. A withholding 
agent may rely on information and certifications contained in 
withholding certificates or other documentation without having to 
inquire into the truthfulness of the information or certifications, 
unless it knows or has reason to know that the information or 
certifications are untrue. A withholding agent may rely upon the same 
documentation for purposes of both chapters 3 and 4 provided the 
documentation is sufficient to meet the requirements of each chapter. 
Alternatively, a withholding agent may elect to rely upon the 
presumption rules of paragraph (f) of this section in lieu of obtaining 
documentation from the payee.
    (2) Reliably associating a payment with documentation if a payment 
is made through an intermediary or flow-through entity that is not the 
payee--(i) In general. A withholding agent that makes a payment to a 
foreign intermediary or foreign flow-through entity that is not the 
payee under paragraph (a) of this section can reliably associate the 
payment with valid documentation if, in addition to the documentation 
described in paragraph (d) of this section that is relevant to each 
payee, the withholding agent also has obtained a valid Form W-8IMY, 
described in paragraph (c)(3)(iii) of this section, from the 
intermediary or flow-through entity (and, with respect to a payment 
made through a chain of intermediaries or flow-through entities, has 
received a valid Form W-8IMY from each intermediary or flow-through 
entity in that chain). An intermediary or flow-through entity that is a 
participating FFI or registered deemed-compliant FFI receiving a 
payment of U.S. source FDAP income may, in lieu of providing the 
withholding agent with documentation for each payee, provide pooled 
allocation information to the extent and in the manner permitted by 
paragraph (c)(3)(iii)(B)(2) of this section.
    (ii) Exception to entity account documentation rules for an 
offshore account of an intermediary or flow-through entity. In the case 
of an offshore account held by an intermediary or flow-through entity 
not receiving a payment of U.S. source FDAP income, an FFI may, in lieu 
of obtaining a withholding certificate, reliably associate such account 
with valid documentation if the FFI has obtained a written statement 
certifying as to the account holder's chapter 4 status and stating that 
the account holder is a flow-through entity or is acting as an 
intermediary with respect to the payment. In such case, the 
intermediary or flow-through entity will also be required to provide 
the withholding statement that generally accompanies the Form W-8IMY, 
designating the payees and the appropriate amount that should be 
allocated to each payee, and valid documentation for each payee. If no 
such withholding statement or underlying documentation is provided, the 
payment will be treated as made to a nonparticipating FFI.
    (3) Requirements for validity of certificates--(i) Form W-9. A 
valid Form W-9, or a substitute form, must meet the requirements 
prescribed in Sec.  31.3406(h)-3 of this chapter, including the 
requirement that the form contain the payee's name and TIN, and be 
signed and dated under penalties of perjury by the payee or a person 
authorized to sign for the payee pursuant to sections 6061 through 6063 
and the regulations thereunder. A foreign person, including a U.S. 
branch of a foreign person that is treated as a U.S. person under Sec.  
1.1441-1(b)(2)(iv), or a foreign branch of a U.S. financial institution 
that is a QI, may not provide a Form W-9.
    (ii) Beneficial owner withholding certificate (Form W-8BEN). A 
beneficial owner withholding certificate includes a Form W-8BEN (or a 
substitute form) and such other form as the IRS may prescribe. A 
beneficial owner withholding certificate is valid only if its validity 
period has not expired, it is signed under penalties of perjury by a 
person with authority to sign for the person whose name is on the form, 
and it contains--
    (A) The person's name, permanent residence address, and TIN (if 
required);
    (B) A certification that the person is not a U.S. citizen (if the 
person is an individual) or a certification of the country under the 
laws of which the person is created, incorporated, or governed (for a 
person other than an individual);
    (C) The entity classification of the person;
    (D) The chapter 4 status of the person; and
    (E) Such other information required under paragraph (d) of this 
section applicable to the chapter 4 status selected or otherwise 
required by the regulations under section 1471 or 1472, or by the form 
or its accompanying instructions in addition to, or in lieu of, the 
information described in this paragraph (c)(3)(ii).
    (iii) Withholding certificate of an intermediary, flow-through 
entity, or U.S. branch (Form W-8IMY)--(A) In general. A withholding 
certificate of an intermediary, flow-through entity, or U.S. branch is 
valid for purposes of chapter 4 only if it is furnished on a Form W-
8IMY, an acceptable substitute form, or such other form as the IRS may 
prescribe, it is signed under penalties of perjury by a person with 
authority to sign for the person named on the form, its validity period 
has not expired, and it contains the following information, statements, 
and certifications--
    (1) The name and permanent residence address of the person.
    (2) The country under the laws of which the person is created, 
incorporated, or governed.
    (3) The person's entity classification for U.S. tax purposes.
    (4) The person's chapter 4 status.
    (5) A GIIN, in the case of a participating FFI or a registered 
deemed-compliant FFI (including a U.S. branch of such an entity), or an 
EIN in the case of a QI, WP, or WT that is not an FFI.
    (6) In the case of an intermediary certificate, a certification 
that, with respect to accounts listed on the withholding statement, the 
intermediary is not acting for its own account.
    (7) With respect to a withholding certificate of a QI, a 
certification that it is acting as a QI with respect to the accounts 
listed on the withholding statement.

[[Page 5919]]

    (8) In the case of a participating FFI or registered deemed-
compliant FFI (including a U.S. branch of either such entities that is 
not treated as a U.S. person) that is an NQI, NWP, NWT, or a QI that 
makes an election to be withheld upon, an FFI withholding statement 
that meets the requirements of paragraphs (c)(3)(iii)(B)(1) and (2) of 
this section.
    (9) In the case of a territory financial institution that does not 
agree to be treated as a U.S. person or a U.S. branch that is not a 
U.S. branch of a participating FFI, registered deemed-compliant FFI, or 
nonparticipating FFI, a chapter 4 withholding statement that meets the 
requirements of paragraphs (c)(3)(iii)(B)(1) and (3) of this section.
    (10) In the case of an NFFE or certified deemed-compliant FFI that 
is an NQI, NWP, or NWT and is not the payee, a chapter 4 withholding 
statement that meets the requirements of paragraphs (c)(3)(iii)(B)(1) 
and (3) of this section.
    (11) In the case of a nonparticipating FFI receiving a payment on 
behalf of one or more exempt beneficial owners, an exempt beneficial 
owner withholding statement that meets the requirements of paragraphs 
(c)(3)(iii)(B)(1) and (4) of this section.
    (12) Any other information, certifications, or statements as may be 
required by the form or its accompanying instructions in addition to, 
or in lieu of, the information and certifications described in this 
paragraph.
    (B) Withholding statement--(1) In general. A withholding statement 
forms an integral part of the withholding certificate and the penalties 
of perjury statement provided on the withholding certificate applies to 
the withholding statement as well. The withholding statement may be 
provided in any manner, and in any form, to which the person submitting 
the form and the withholding agent mutually agree, including 
electronically. If the withholding statement is provided 
electronically, there must be sufficient safeguards to ensure that the 
information received by the withholding agent is the information sent 
by the person submitting the withholding certificate and the electronic 
system must document all occasions of user access that result in the 
submission or modification of withholding statement information. In 
addition, the electronic system must be capable of providing a hard 
copy of all withholding statements provided electronically. The 
withholding statement must be updated as often as necessary for the 
withholding agent to meet its reporting and withholding obligations 
under chapter 4. A withholding agent will be liable for tax, interest, 
and penalties under Sec.  1.1474-1(a) to the extent it does not follow 
the presumption rules of paragraph (f) of this section for any payment, 
or portion thereof, for which a withholding statement is required and 
the withholding agent does not have a valid withholding statement prior 
to making a payment. A withholding agent that is making a payment for 
which a withholding statement is also required for purposes of chapter 
3, may only rely upon the withholding statement if, in addition to 
providing the information required by paragraph (c)(3)(iii)(B) of this 
section, the withholding statement also includes all of the information 
required for purposes of chapter 3 and specifies the chapter 4 status 
of each payee or pool of payees identified on the withholding statement 
for purposes of chapter 3.
    (2) Special requirements for an FFI withholding statement. An FFI 
withholding statement must include either pooled information that 
indicates the portion of the payment attributable to U.S. persons, 
recalcitrant account holders, nonparticipating FFIs, and any other 
class of payees that is not subject to withholding under chapter 4; or, 
when payee specific information is provided for purposes of chapter 3, 
an allocation of the payment to each payee with the payee's chapter 4 
status. Regardless of whether the FFI withholding statement provides 
information on a pooled basis or on a payee specific basis, the 
withholding statement must identify each intermediary or flow-through 
entity that receives the payment on behalf of a payee with such 
entity's chapter 4 status and GIIN, when applicable. An FFI withholding 
statement must also include any other information that the withholding 
agent reasonably requests in order to fulfill its obligations under 
chapter 4.
    (3) Special requirements for a chapter 4 withholding statement. A 
chapter 4 withholding statement must contain the name, address, TIN (if 
any), entity type, and chapter 4 status of each payee, the amount 
allocated to each payee, a valid withholding certificate or other 
appropriate documentation sufficient to establish the chapter 4 status 
of each payee, and each intermediary or flow-through that receives the 
payment on behalf of the payee, in accordance with paragraph (d) of 
this section, and any other information the withholding agent 
reasonably requests in order to fulfill its obligations under chapter 
4. Notwithstanding the prior sentence, a chapter 4 withholding 
statement is permitted to provide pooled allocation information with 
respect to payees that are treated as nonparticipating FFIs.
    (4) Special requirements for an exempt beneficial owner withholding 
statement. An exempt beneficial owner withholding statement must 
include the name, address, TIN (if any), entity type, and chapter 4 
status of each exempt beneficial owner on behalf of which the 
nonparticipating FFI is receiving the payment, the amount of the 
payment allocable to each exempt beneficial owner, a valid withholding 
certificate or other documentation sufficient to establish the chapter 
4 status of each exempt beneficial owner in accordance with paragraph 
(d) of this section, and any other information the withholding agent 
reasonably requests in order to fulfill its obligations under chapter 
4. The withholding statement must allocate the remainder of the payment 
that is not allocated to an exempt beneficial owner to the 
nonparticipating FFI receiving the payment.
    (C) Failure to provide allocation information. A withholding 
certificate that fails to provide allocation information or any of the 
required documentation for one or more of the payees will not be 
treated as invalid with respect to the persons for whom valid 
documentation and allocation information is properly provided. The 
portion of the payment that is not reliably associated with underlying 
documentation or that is not properly allocated will be treated in 
accordance with the presumption rules set forth in paragraph (f) of 
this section. For example, assume a withholding certificate that is 
provided by a participating FFI that is an NQI includes an FFI 
withholding statement that indicates that 50 percent of the payment is 
allocable to payees that are exempt for purposes of chapter 4 but does 
not allocate the remaining 50 percent of the payment for purposes of 
chapter 4. In such case, the withholding agent may treat 50 percent of 
the payment as exempt from chapter 4 and the remaining 50 percent that 
was not allocated will be treated, under the presumption rules set 
forth in paragraph (f) of this section, as made to a pool of payees 
that are nonparticipating FFIs.
    (D) Special rules applicable to a withholding certificate of a QI 
that assumes primary withholding responsibility under chapter 3. A QI 
that assumes primary withholding responsibility under chapter 3 for a 
payment may not make an election to be withheld upon, as described in 
Sec.  1.1471-2(a)(2)(iii), with respect to that payment. Thus, if a QI 
assumes primary withholding responsibility under

[[Page 5920]]

chapter 3 with respect to a payment of U.S. source FDAP income, in 
addition to the other requirements described in paragraph 
(c)(3)(iii)(A) of this section, a withholding agent can reliably 
associate the payment with a valid withholding certificate only when 
the QI has also indicated on the intermediary withholding certificate 
that it will assume primary withholding responsibility for that payment 
for purposes of chapter 4.
    (E) Special rules applicable to a withholding certificate of a QI 
that does not assume primary withholding responsibility under chapter 
3. A QI that does not assume primary withholding responsibility under 
chapter 3 with respect to a payment of U.S. source FDAP income will be 
required to make the election to be withheld upon with respect to that 
payment. Thus, if a QI does not assume primary withholding 
responsibility under chapter 3, a withholding agent can reliably 
associate a payment of U.S. source FDAP income with a valid withholding 
certificate only when, in addition to the other information required by 
paragraph (c)(3)(iii)(A) of this section, the withholding certificate 
indicates that the QI does not assume primary withholding 
responsibility for that payment for purposes of chapter 4.
    (F) Special rules applicable to a withholding certificate of a 
territory financial institution that agrees to be treated as a U.S. 
person. A withholding agent may reliably associate a payment with an 
intermediary withholding certificate or flow-through withholding 
certificate of a territory financial institution that agrees to be 
treated as a U.S. person if, in addition to the other information 
required by paragraph (c)(3)(iii)(A) of this section, the certificate 
contains an EIN of the territory financial institution and a 
certification that the territory financial institution agrees to be 
treated as a U.S. person and accepts primary withholding responsibility 
with respect to the payment for purposes of both chapters 3 and 4.
    (G) Special rules applicable to a withholding certificate of a 
territory financial institution that does not agree to be treated as a 
U.S. person. A withholding agent may reliably associate a payment with 
an intermediary withholding certificate or a flow-through withholding 
certificate of a territory financial institution that does not agree to 
be treated as a U.S. person if, in addition to the information required 
by paragraph (c)(3)(iii)(A) of this section, the certificate indicates 
that the institution has not agreed to be treated as a U.S. person for 
purposes of chapter 4 and the institution provides a withholding 
statement described in paragraphs (c)(3)(iii)(B)(1) and (3) of this 
section.
    (H) Special rules applicable to a withholding certificate of a U.S. 
branch treated as a U.S. person. A withholding agent may reliably 
associate a payment with a withholding certificate of a U.S. branch 
that is treated as a U.S. person for purposes of Sec.  1.1441-
1(b)(2)(iv) if, in addition to the other information required by 
paragraph (c)(2)(iii)(A) of this section; the certificate contains the 
EIN of the U.S. branch; the GIIN of the U.S. branch; and a 
certification that the U.S. branch is described in paragraph Sec.  
1.1441-1(b)(2)(iv) and, accordingly, is required to accept primary 
withholding responsibility with respect to the payment for purposes of 
both chapters 3 and 4.
    (iv) Certificate for exempt status (Form W-8EXP). A Form W-8EXP is 
valid only if it contains the name, address, and chapter 4 status of 
the payee, the relevant certifications or documentation, and any other 
requirements indicated in the instructions to the form, and is signed 
under penalties of perjury by a person with authority to sign for the 
payee.
    (v) Certificate for effectively connected income (Form W-8ECI). A 
Form W-8ECI is valid only if, in addition to meeting the requirements 
in the instructions to the form, it contains the name, address, and TIN 
of the payee (other than a GIIN), represents that the amounts for which 
the certificate is furnished are effectively connected with the conduct 
of a trade or business in the United States and are includable in the 
payee's gross income for the taxable year (or are gross proceeds from 
the sale of property that can produce income that is effectively 
connected with the conduct of a trade or business in the United 
States), and is signed under penalties of perjury by a person with 
authority to sign for the payee.
    (4) Requirements for written statements. A written statement is a 
statement by the payee, or other person receiving the payment, that 
provides the person's chapter 4 status and any other information 
reasonably requested by the withholding agent to fulfill its 
obligations under chapter 4 with respect to the payment, such as 
whether the person is receiving the payment as a beneficial owner, 
intermediary, or flow-through entity. A written statement is valid only 
if it is provided by a person with respect to an offshore obligation, 
contains the name of the person, the person's address, the 
certifications relevant to the person's chapter 4 status (as contained 
on a withholding certificate), any additional information required with 
respect to the chapter 4 status claimed as provided under paragraph (d) 
of this section (for example, a GIIN), and a signed and dated 
certification that the information provided on the form is accurate and 
will be updated by the individual within 30 days of a change in 
circumstances that causes the form to become incorrect. A written 
statement may be submitted in any form that is acceptable to the 
withholding agent, including a statement made as part of the account 
opening documentation. A written statement may be used in lieu of a 
withholding certificate only to the extent provided under Sec.  1.1471-
3(d), as applicable to the chapter 4 status claimed.
    (5) Requirements for documentary evidence. Documentary evidence 
with respect to a payee is only reliable if it contains sufficient 
information to support the payee's claim of chapter 4 status.
    (i) Foreign status. Acceptable documentary evidence supporting a 
claim of foreign status includes the following types of documentation 
if the documentation contains a permanent residence address for the 
person named on the documentation (or indicates the country in which a 
person that is an individual is a resident or citizen or the country in 
which a person that is an entity has a permanent residence or is 
incorporated or organized, if the withholding agent has otherwise 
obtained a current permanent residence address for the person)--
    (A) Certificate of residence. A certificate of residence issued by 
an appropriate tax official of the country in which the payee claims to 
be a resident that indicates that the payee has filed its most recent 
income tax return as a resident of that country;
    (B) Individual government identification. With respect to an 
individual, any valid identification issued by an authorized government 
body (for example, a government or agency thereof, or a municipality), 
that is typically used for identification purposes;
    (C) QI documentation. With respect to an account maintained in a 
jurisdiction with anti-money laundering rules that have been approved 
by the IRS in connection with a QI agreement (as referenced in Sec.  
1.1441-1(e)(5)(iii)), any of the documents other than a Form W-8 or W-9 
referenced in the jurisdiction's attachment to the QI agreement for 
identifying individuals or entities;
    (D) Entity government documentation. With respect to an entity, any 
official documentation issued by an authorized

[[Page 5921]]

government body (for example, a government or agency thereof, or a 
municipality); and
    (E) Third-party credit report. For a payment made with respect to 
an offshore obligation to an individual, a third-party credit report 
that is obtained pursuant to the conditions described in Sec.  1.1471-
4(c)(4)(ii).
    (ii) Chapter 4 status. Acceptable documentary evidence supporting 
an entity's claim of chapter 4 status includes--
    (A) General documentary evidence. With respect to an entity other 
than a participating FFI or registered deemed-compliant FFI, any 
organizational document (such as articles of incorporation or a trust 
agreement), financial statement, third-party credit report, letter from 
a government agency, or statement from a government Web site, agency, 
or registrar (such as an SEC report) to the extent permitted in 
paragraphs (d) and (e) of this section;
    (B) Preexisting account documentary evidence. With respect to a 
preexisting obligation of an entity, any standardized industry code or 
any classification in the withholding agent's records with respect to 
the payee that was determined based on documentation supplied by the 
payee (or other person receiving the payment) and that was recorded by 
the withholding agent by the later of January 1, 2012, or six months 
after the date the withholding agent was formed or organized, to the 
extent permitted by paragraph (d) of this section and provided there is 
no U.S. indicia associated with the payee for which appropriate curing 
documentation has not been obtained as set forth in paragraph (e) of 
this section; and
    (C) Payee-specific documentary evidence. A letter from an auditor 
or attorney with a location in the United States that is not related to 
the withholding agent or payee and is subject to the authority of a 
regulatory body that governs the auditor's or attorney's review of the 
chapter 4 status of the payee, any bankruptcy filing, corporate 
resolution, copy of a stock market index or other document to the 
extent permitted in the specific payee documentation requirements in 
paragraph (d) and (e) of this section.
    (6) Applicable rules for withholding certificates, written 
statements, and documentary evidence. The provisions in this paragraph 
(c)(6) describe standards generally applicable to withholding 
certificates (Forms W-8 or substitute forms), written statements, and 
documentary evidence furnished to establish the payee's chapter 4 
status. These provisions do not apply to Forms W-9 (or their 
substitutes). For corresponding provisions regarding the Form W-9 (or a 
substitute Form W-9), see section 3406 and the regulations thereunder.
    (i) Who may sign the withholding certificate or written statement. 
A withholding certificate (including an acceptable substitute) or 
written statement may be signed by any person authorized to sign a 
declaration under penalties of perjury on behalf of the person whose 
name is on the certificate or written statement, as provided in 
sections 6061 through 6063 and the regulations thereunder. A person 
authorized to sign a withholding certificate or written statement 
includes an officer or director of a corporation, a partner of a 
partnership, a trustee of a trust, an executor of an estate, any 
foreign equivalent of the former titles, and any other person that has 
been provided written authorization by the individual or entity named 
on the certificate or written statement to sign documentation on such 
person's behalf.
    (ii) Period of validity--(A) General rule. Except as provided 
otherwise in paragraphs (c)(6)(ii)(B) and (C), a withholding 
certificate or written statement will remain valid until the last day 
of the third calendar year following the year in which the withholding 
certificate or written statement is signed. Documentary evidence is 
generally valid until the last day of the third calendar year following 
the year in which the documentary evidence is provided to the 
withholding agent. Nevertheless, documentary evidence that contains an 
expiration date may be treated as valid until that expiration date if 
doing so would provide a longer period of validity than the three-year 
period. Notwithstanding the validity periods permitted by paragraphs 
(c)(6)(ii)(A) through (D) of this section, a withholding certificate, 
written statement, and documentary evidence will cease to be valid if 
the withholding agent has knowledge of a change in circumstances that 
makes the information on the documentation incorrect. Therefore, a 
withholding agent is required to institute procedures to ensure that 
any change to the customer master files that constitutes a change in 
circumstances described in paragraph (c)(6)(ii)(E) of this section is 
identified by the withholding agent. In addition, a withholding agent 
is required to notify any person providing documentation of the 
person's obligation to notify the withholding agent of a change in 
circumstances.
    (B) Indefinite validity. Notwithstanding paragraph (c)(6)(ii)(A) of 
this section, the following certificates (or parts of certificates), 
written statements, or documentary evidence shall remain valid until 
the withholding agent has knowledge of a change in circumstances that 
makes the information on the documentation incorrect--
    (1) A withholding certificate or written statement provided by a 
participating FFI or registered deemed-compliant FFI that has furnished 
a valid GIIN that has been verified by the withholding agent in the 
manner set forth in paragraph (e)(3) of this section;
    (2) A beneficial owner withholding certificate that is provided by 
an individual claiming foreign status if the withholding certificate is 
furnished with documentary evidence supporting the individual's claim 
of foreign status and the withholding agent does not have a current 
U.S. residence or U.S. mailing address for the payee and does not have 
one or more current U.S. telephone numbers that are the only telephone 
numbers the withholding agent has for the payee;
    (3) A beneficial owner withholding certificate that is provided by 
an entity described in paragraph (c)(6)(ii)(C)(2) of this section if 
the withholding certificate is furnished with documentary evidence 
establishing the entity's foreign status;
    (4) A withholding certificate of an intermediary, flow-through 
entity, or U.S. branch (not including the withholding certificates, 
written statements, or documentary evidence of the payees, or 
withholding statements associated with the withholding certificate);
    (5) A withholding certificate, written statement, or documentary 
evidence furnished by a foreign government, government of a U.S. 
territory, foreign central bank (including the Bank for International 
Settlements), international organization, or entity that is wholly 
owned by any such entities; and
    (6) Documentary evidence that is not generally renewed or amended 
(such as a certificate of incorporation).
    (C) Indefinite validity in the case of certain offshore 
obligations. Notwithstanding paragraph (c)(6)(ii)(A) of this section, 
the following certificates, written statements, and documentary 
evidence that are provided with respect to offshore obligations shall 
remain valid until a change in circumstances occurs that makes the 
information on the documentation incorrect--
    (1) A withholding certificate or documentary evidence provided by 
an individual claiming foreign status if the withholding agent does not 
have a current U.S. residence or U.S. mailing address for the payee, 
does not have one

[[Page 5922]]

or more current U.S. telephone numbers that are the only telephone 
numbers the withholding agent has for the payee, and has not been 
provided standing instructions to make a payment in the United States 
for the obligation;
    (2) A withholding certificate, written statement, or documentary 
evidence provided by one of the following entities if such entity is 
the payee--
    (i) A retirement fund described in Sec.  1.1471-6(f) or an entity 
that is wholly owned by such a retirement fund;
    (ii) An excepted nonfinancial group entity described in Sec.  
1.1471-5(e)(5)(i);
    (iii) A section 501(c) entity described in Sec.  1.1471-5(e)(v);
    (iv) A non-profit organization described in Sec.  1.1471-
5(e)(5)(vi);
    (v) A nonreporting IGA FFI;
    (vi) A territory financial institution that agrees to be treated as 
a U.S. person for chapter 4 purposes;
    (vii) An NFFE whose stock is regularly traded as described in Sec.  
1.1472-1(c)(1)(i);
    (viii) An NFFE affiliate described in Sec.  1.1472-1(c)(1)(ii);
    (ix) An active NFFE that the withholding agent has determined, 
through its AML due diligence, is engaged in a business other than that 
of a financial institution, and ongoing monitoring of the account for 
purposes of AML due diligence does not indicate that the determination 
is incorrect; and
    (x) A sponsored FFI described in Sec.  1.1471-5(f)(2)(iii);
    (3) A withholding certificate of an owner-documented FFI, but not 
including the withholding statements, documentary evidence, and 
withholding certificates of its owners (unless such documentation is 
permitted indefinite validity under another provision);
    (4) A withholding statement associated with a withholding 
certificate of an owner-documented FFI provided the account balance of 
all accounts held by such owner-documented FFI with the withholding 
agent does not exceed $1,000,000 on the later of December 31, 2013, or 
the last day of the calendar year in which the account was opened, and 
the last day of each subsequent calendar year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4)(iii), and 
the owner-documented FFI does not have any contingent beneficiaries or 
designated classes with unidentified beneficiaries; and
    (5) A withholding certificate of a passive NFFE or excepted 
territory NFFE, provided the account balance of all accounts held by 
such entity with the withholding agent does not exceed $1,000,000 on 
the later of December 31, 2013, or the last of the calendar year in 
which the account was opened, and the last day of each subsequent 
calendar year preceding the payment, applying the aggregation 
principles of Sec.  1.1471-5(b)(4)(iii), and the withholding agent does 
not know or have reason to know that the entity has any contingent 
beneficiaries or designated classes with unidentified beneficiaries.
    (D) Exception for certificate for effectively connected income. 
Notwithstanding paragraphs (c)(6)(ii)(B) to (C) of this section, the 
period of validity of a withholding certificate furnished to a 
withholding agent to claim a reduced rate of withholding for income 
that is effectively connected with the conduct of a trade or business 
within the United States shall be limited to the three-year period 
described in paragraph (c)(6)(ii)(A) of this section.
    (E) Change in circumstances--(1) Defined. For purposes of this 
chapter, a person is considered to have a change in circumstances only 
if such change would affect the chapter 4 status of the person. A 
change in circumstances includes any change that results in the 
addition of information described in paragraph (e)(4) relevant to a 
person's claim of foreign status (that is, U.S. indicia that is not 
otherwise cured by documentation on file and that is relevant to the 
chapter 4 status claimed) or otherwise conflicts with such person's 
claim of chapter 4 status. Unless stated otherwise, a change of address 
or telephone number is a change in circumstances for purposes of this 
paragraph (c)(6)(ii)(E) only if it changes to an address or telephone 
number in the United States. A change in circumstances affecting the 
withholding information provided to the withholding agent, including 
allocation information or withholding pools contained in a withholding 
statement or owner reporting statement, will terminate the validity of 
the withholding certificate with respect to the information that is no 
longer reliable, until the information is updated.
    (2) Obligation to notify withholding agent of a change in 
circumstances. If a change in circumstances makes any information on a 
certificate or other documentation incorrect, then the person whose 
name is on the certificate or other documentation must inform the 
withholding agent within 30 days of the change and furnish a new 
certificate, a new written statement, or new documentary evidence. If 
an intermediary or a flow-through entity becomes aware that a 
certificate or other appropriate documentation it has furnished to the 
person from whom it collects a payment is no longer valid because of a 
change in the circumstances of the person who issued the certificate or 
furnished the other appropriate documentation, then the intermediary or 
flow-through entity must notify the person from whom it collects the 
payment of the change in circumstances within 30 days of the date that 
it knows or has reason to know of the change in circumstances. It must 
also obtain a new withholding certificate or new appropriate 
documentation to replace the existing certificate or documentation the 
validity of which has expired due to the change in circumstances.
    (3) Withholding agent's obligation with respect to a change in 
circumstances. A certificate or other documentation becomes invalid on 
the date that the withholding agent holding the certificate or 
documentation knows or has reason to know that circumstances affecting 
the correctness of the certificate or documentation have changed. 
However, a withholding agent may choose to treat a person as having the 
same chapter 4 status that it had prior to the change in circumstances 
until the earlier of 90 days from the date that the certificate or 
documentation became unreliable due to the change in circumstances or 
the date that a new certificate or new documentation is obtained. A 
withholding agent may rely on a certificate without having to inquire 
into possible changes of circumstances that may affect the validity of 
the statement, unless it knows or has reason to know that circumstances 
have changed. A withholding agent may require a new certificate or 
additional documentation at any time prior to a payment, regardless of 
whether the withholding agent knows or has reason to know that any 
information stated on the certificate or documentation has changed.
    (iii) Record Retention--(A) In general. A withholding agent must 
retain each withholding certificate, written statement, or copy of 
documentary evidence for as long as it may be relevant to the 
determination of the withholding agent's tax liability under section 
1474(a) and Sec.  1.1474-1. A withholding agent may retain an original, 
certified copy, or photocopy (including a microfiche, electronic scan, 
or similar means of electronic storage) of the withholding certificate, 
written statement, or documentary evidence. With respect to documentary 
evidence, the withholding agent must also note in its records the date 
on which the document was received and reviewed. Any documentation that 
is stored electronically must be made available in hard copy form to 
the IRS upon request during an examination.

[[Page 5923]]

    (B) Exception for documentary evidence received with respect to 
offshore obligations. A withholding agent that is making a payment with 
respect to an offshore obligation and is not required to retain copies 
of documentation reviewed pursuant to its AML due diligence, may, in 
lieu of retaining the documents as set forth in paragraph 
(c)(6)(iii)(A), retain a notation of the type of documentation 
reviewed, the date the documentation was reviewed, the document's 
identification number (if any) (for example, a passport number), and 
whether such documentation contained any U.S. indicia. The previous 
sentence applies with respect to an offshore obligation that is also a 
preexisting obligation, except, in such case, the requirement to record 
whether the documentation contained U.S. indicia does not apply. See 
also Sec.  1.1471-4(c)(2)(iv) for the record retention requirements of 
a participating FFI.
    (iv) Electronic transmission of withholding certificate, written 
statement, and documentary evidence. A withholding agent may accept a 
withholding certificate (including an acceptable substitute form), a 
written statement, or other such form as the IRS may prescribe, 
electronically in accordance with the requirements set forth in Sec.  
1.1441-1(e)(4)(iv). See Sec.  1.1441-1(e)(4)(iv) for procedures for the 
electronic transmission of a withholding certificate that has been 
completed and signed with a handwritten signature, scanned into an 
electronic system, and sent to the withholding agent via email. A 
withholding certificate (including a substitute form), written 
statement, or other such form prescribed by the IRS may be accepted by 
facsimile if the withholding agent confirms that the individual or 
entity furnishing the form is the individual or entity named on the 
form and the faxed form contains a signature of the person whose name 
is on the form (or such person's authorized representative) made under 
penalties of perjury in the manner described in Sec.  1.1441-
1(e)(4)(iv)(B)(3)(i). A withholding agent may also accept a copy of 
documentary evidence electronically, including by facsimile or by 
email, if the withholding agent confirms that the person furnishing the 
documentary evidence is the person named on the documentary evidence 
(or such person's authorized representative) and the copy does not 
appear to have been altered from its original form.
    (v) Acceptable substitute withholding certificate--(A) In general. 
A withholding agent may substitute its own form for an official Form W-
8 (or such other official form as the IRS may prescribe). A substitute 
form will be acceptable if it contains provisions that are 
substantially similar to those of the official form, it contains the 
same certifications relevant to the transactions as are contained on 
the official form and these certifications are clearly set forth, and 
the substitute form includes a signature-under-penalties-of-perjury 
statement identical to the one on the official form. The substitute 
form is acceptable even if it does not contain all of the provisions 
contained on the official form, so long as it contains those provisions 
that are relevant to the transaction for which it is furnished. A 
withholding agent may choose to provide a substitute form that does not 
include all of the exemptions from withholding provided on the official 
version but the substitute form must include any chapter 4 status for 
which withholding may apply, such as the categories for a 
nonparticipating FFI or passive NFFE. A withholding agent that uses a 
substitute form must furnish instructions relevant to the substitute 
form only to the extent and in the manner specified in the instructions 
to the official form. A withholding agent may use a substitute form 
that is written in a language other than English and may accept a form 
that is filled out in a language other than English, but the 
withholding agent must make available an English translation of the 
form and its contents to the IRS upon request. A withholding agent may 
refuse to accept a certificate from a person (including the official 
Form W-8) if the certificate provided is not an acceptable substitute 
form provided by the withholding agent, but only if the withholding 
agent furnishes the person with an acceptable substitute form within 
five business days of receipt of an unacceptable form from the person. 
In that case, the substitute form is acceptable only if it contains a 
notice that the withholding agent has refused to accept the form 
submitted by the person and that the person must submit the acceptable 
form provided by the withholding agent in order for the person to be 
treated as having furnished the required withholding certificate.
    (B) Non-IRS form for individuals. A withholding agent may also 
substitute its own form for an official Form W-8BEN (for individuals), 
regardless of whether the substitute form is titled a Form W-8. 
However, in addition to the name and address of the individual that is 
the payee or beneficial owner, the form must provide all countries in 
which the individual is resident for tax purposes, city and country of 
birth, a tax identification number, if any, for each country of 
residence, and must contain a signed and dated certification made under 
penalties of perjury that the information provided on the form is 
accurate and will be updated by the individual within 30 days of a 
change in circumstances that causes the form to become incorrect. 
Notwithstanding the previous sentence, the signed certification 
provided on a form need not be signed under penalties of perjury if the 
form is accompanied by documentary evidence that supports the 
individual's claim of foreign status. Such documentary evidence may be 
the same documentary evidence that is used to support foreign status in 
the case of a payee whose account has U.S. indicia as described in 
paragraph (e) of this section or Sec.  1.1471-4(c)(4)(i)(A). The form 
may also request other information required for purposes of tax or AML 
due diligence in the United States or in other countries.
    (vi) Electronic confirmation of TIN on withholding certificate. The 
Commissioner may prescribe procedures in a revenue procedure or other 
appropriate guidance to require a withholding agent to confirm 
electronically with the IRS information concerning any TIN stated on a 
withholding certificate.
    (vii) Reliance on a prior version of a withholding certificate. 
Upon the issuance by the IRS of an updated version of a withholding 
certificate, a withholding agent may continue to accept the prior 
version of the withholding certificate for six months after the 
revision date shown on the updated withholding certificate, unless the 
IRS has issued guidance that indicates otherwise, and may continue to 
rely upon a previously signed prior version of the withholding 
certificate until its period of validity expires.
    (7) Curing documentation errors. The provisions in this paragraph 
(c)(7) describe standards generally applicable to withholding 
certificates (Forms W-8 or substitute forms), written statements, and 
documentary evidence furnished to establish the payee's chapter 4 
status. These provisions do not apply to Forms W-9 (or their 
substitutes). For corresponding provisions regarding the Form W-9 (or a 
substitute Form W-9), see section 3406 and the regulations thereunder.
    (i) Curing inconsequential errors on a withholding certificate. A 
withholding agent may treat a withholding certificate as valid, 
notwithstanding that the withholding certificate contains an 
inconsequential error, if the withholding agent has sufficient 
documentation on file to supplement

[[Page 5924]]

the information missing from the withholding certificate due to the 
error. In such case, the documentation relied upon to cure the 
inconsequential error must be conclusive. For example, a withholding 
certificate in which the individual submitting the form abbreviated the 
country of residence may be treated as valid, notwithstanding the 
abbreviation, if the withholding agent has government issued 
identification for the person from a country that reasonably matches 
the abbreviation. On the other hand, an abbreviation for the country of 
residence that does not reasonably match the country of residence shown 
on the person's passport is not an inconsequential error. A failure to 
select an entity type on a withholding certificate is not an 
inconsequential error, even if the withholding agent has an 
organization document for the entity that provides sufficient 
information to determine the person's entity type, if the person was 
eligible to make an election under Sec.  301.7701-3(c)(1)(i) of this 
chapter (that is, a check-the-box election). A failure to check a box 
to make a required certification on the withholding certificate or to 
provide a country of residence or a country under which treaty benefits 
are sought is not an inconsequential error. In addition, information on 
a withholding certificate that contradicts other information contained 
on the withholding certificate or in the customer master file is not an 
inconsequential error.
    (ii) Documentation received after the time of payment. Proof that 
withholding was not required under the provisions of chapter 4 and the 
regulations thereunder also may be established after the date of 
payment by the withholding agent on the basis of a valid withholding 
certificate and/or other appropriate documentation that was furnished 
after the date of payment but that was effective as of the date of 
payment. A withholding certificate furnished after the date of payment 
will be considered effective as of the date of the payment if the 
certificate contains a signed affidavit (either at the bottom of the 
form or on an attached page) that states that the information and 
representations contained on the certificate were accurate as of the 
time of the payment. A certificate obtained within 30 days after the 
date of the payment will not be considered to be unreliable solely 
because it does not contain an affidavit. However, in the case of a 
withholding certificate of an individual received more than a year 
after the date of payment, the withholding agent will be required to 
obtain, in addition to the withholding certificate and affidavit, 
documentary evidence described in paragraph (c)(5)(i) of this section 
that supports the individual's claim of foreign status. In the case of 
a withholding certificate of an entity received more than a year after 
the date of payment, the withholding agent will be required to obtain, 
in addition to the withholding certificate and affidavit, documentary 
evidence specified in paragraph (c)(5)(ii) of this section that 
supports the chapter 4 status claimed. If documentation other than a 
withholding certificate is submitted from a payee more than a year 
after the date of payment, the withholding agent will be required to 
also obtain from the payee a withholding certificate and affidavit 
supporting the chapter 4 status claimed as of the date of the payment.
    (8) Documentation furnished on account-by-account basis unless 
exception provided for sharing documentation within expanded affiliated 
group. Except as otherwise provided in this paragraph (c)(8), a 
withholding agent that is a financial institution with which a customer 
may open an account must obtain withholding certificates, written 
statements, Forms W-9, or documentary evidence on an account-by-account 
basis. Notwithstanding the previous sentence, a withholding agent may 
rely upon the withholding certificate, written statement, or 
documentary evidence furnished by a customer under any one or more of 
the circumstances described in this paragraph (c)(8).
    (i) Single branch systems. A withholding agent may rely on 
documentation furnished by a customer for another account if both 
accounts are held at the same branch location and both accounts are 
treated as consolidated obligations.
    (ii) Universal account systems. A withholding agent may rely on 
documentation furnished by a customer for an account held at another 
branch location of the same withholding agent or at a branch location 
of a member of the expanded affiliated group of the withholding agent 
if the withholding agent treats all accounts that share documentation 
as consolidated obligations and the withholding agent and the other 
branch location or expanded affiliated group member are part of a 
universal account system that uses a customer identifier that can be 
used to retrieve systematically all other accounts of the customer. A 
withholding agent that opts to rely upon the chapter 4 status 
designated for the payee in the universal account system without 
obtaining and reviewing copies of the documentation supporting the 
status must be able to produce all documentation (or a notation of the 
documentary evidence reviewed if the withholding agent is not required 
to retain copies of the documentary evidence) relevant to the chapter 4 
status claimed upon request by the IRS and will be liable for any 
underwithholding that results from any failure to assign the correct 
status based upon the available information.
    (iii) Shared account systems. A withholding agent may rely on 
documentation furnished by a customer for an account held at another 
branch location of the same withholding agent or at a branch location 
of a member of the expanded affiliated group of the withholding agent 
if the withholding agent treats all accounts that share documentation 
as consolidated accounts and the withholding agent and the other branch 
location or expanded affiliated group member share an information 
system, electronic or otherwise, that is described in this paragraph 
(c)(8)(iii). The system must allow the withholding agent to easily 
access data regarding the nature of the documentation, the information 
contained in the documentation (including a copy of the documentation 
itself), and the validity status of the documentation. The information 
system must also allow the withholding agent to easily transmit data 
into the system regarding any facts of which it becomes aware that may 
affect the reliability of the documentation. The withholding agent must 
be able to establish, to the extent applicable, how and when it has 
transmitted data regarding any facts of which it became aware that may 
affect the reliability of the documentation and must be able to 
establish that any data it has transmitted to the information system 
has been processed and appropriate due diligence has been exercised 
regarding the validity of the documentation. A withholding agent that 
opts to rely upon the chapter 4 status designated for the payee in the 
shared account system without obtaining and reviewing copies of the 
documentation supporting the status must be able to produce all 
documentation (or a notation of the documentary evidence reviewed if 
the withholding agent is not required to retain copies of the 
documentary evidence) relevant to the chapter 4 status claimed upon 
request by the IRS and will be liable for any underwithholding that 
results from any failure to assign the correct status based upon the 
available information.
    (iv) Document sharing for gross proceeds. [Reserved].

[[Page 5925]]

    (9) Reliance on documentation collected by or certifications 
provided by other persons--(i) Shared documentation system maintained 
by an agent. A withholding agent may rely on documentation collected by 
an agent (including a fund advisor for mutual funds, hedge funds, or a 
private equity group) of the withholding agent. The agent may retain 
the documentation as part of an information system maintained for a 
single withholding agent or multiple withholding agents provided that 
under the system, any withholding agent on behalf of which the agent 
retains documentation may easily access data regarding the nature of 
the documentation, the information contained in the documentation 
(including a copy of the documentation itself) and its validity, and 
must allow such withholding agent to easily transmit data, either 
directly into an electronic system or by providing such information to 
the agent, regarding any facts of which it becomes aware that may 
affect the reliability of the documentation. The withholding agent must 
be able to establish, to the extent applicable, how and when it has 
transmitted data regarding any facts of which it became aware that may 
affect the reliability of the documentation and must be able to 
establish that any data it has transmitted has been processed and 
appropriate due diligence has been exercised regarding the validity of 
the documentation. The agent must have a system in effect to ensure 
that any information it receives regarding facts that affect the 
reliability of the documentation or the chapter 4 status assigned to 
the customer are provided to all withholding agents for which the agent 
retains the documentation and any chapter 4 status assigned by the 
agent is amended to incorporate such information. A withholding agent 
that opts to rely upon the chapter 4 status assigned by the agent 
without obtaining and reviewing copies of the documentation supporting 
the status must be able to produce all documentation relevant to the 
chapter 4 status claimed upon request by the IRS and will be liable for 
any underwithholding that results from a failure of the agent to assign 
the correct status based upon the available information. See Sec.  
1.1474-1(a) for a withholding agent's liability when it relies upon an 
agent for chapter 4 purposes. This paragraph (c)(9)(i) does not apply 
to a withholding certificate provided by a QI, a withholding 
certificate provided by a territory financial institution that elects 
to be treated as a U.S. person, or any withholding statement, unless 
the person submitting the form specifically identifies the withholding 
agents for which the certificates and/or statements are provided.
    (ii) Third-party data providers. A withholding agent may rely upon 
documentation collected by a third-party data provider with respect to 
an entity, subject to the conditions described in this paragraph 
(c)(9)(ii).
    (A) The third-party data provider must have collected documentation 
that is sufficient to determine the chapter 4 status of the entity 
under paragraph (d) of this section.
    (B) The third-party data provider must be in the business of 
providing credit reports or business reports to unrelated customers and 
must have reviewed all information it has for the entity and verified 
that such additional information does not conflict with the chapter 4 
status claimed by the entity.
    (C) The third-party data provider must notify the entity submitting 
the documentation that such entity must notify the third-party data 
provider in the event of a change in circumstances within 30 days of 
the change in circumstances, and the third-party data provider must be 
obligated under its contract with the withholding agent to notify the 
withholding agent if a change in circumstances occurs.
    (D) The withholding agent may not rely upon a chapter 4 status 
provided by a third-party data provider if the withholding agent knows 
or has reason to know that the chapter 4 status is unreliable or 
incorrect based on information in the withholding agent's account 
records, or if the documentation or information provided by the third-
party data provider does not support the chapter 4 status claimed.
    (E) The withholding agent must be able to submit copies of the 
documentation received from the third-party data provider upon request 
to the IRS and will remain liable for any underwithholding that occurs 
as a result of its reliance on information provided by the third-party 
data provider if the documentation is invalid or unreliable.
    (F) This paragraph (c)(9)(ii) does not apply to a withholding 
statement or a withholding certificate that contains an election to 
accept withholding or reporting responsibility (such as one made by a 
QI, territory financial institution, or U.S. branch) provided by a 
third-party data provider.
    (iii) Reliance on certification provided by introducing brokers--
(A) A withholding agent may rely on a certification of a broker 
indicating the broker's determination of a payee's chapter 4 status and 
indicating that the broker holds valid documentation sufficient to 
determine the payee's chapter 4 status under paragraph (d) of this 
section with respect to any readily tradable instrument as defined in 
Sec.  31.3406(h)-1(d) of this chapter if the conditions in paragraph 
(c)(9)(iii)(B) of this section are satisfied and the broker is either--
    (1) A U.S. person (including a U.S. branch that is treated as a 
U.S. person) that is acting as the agent of the payee; or
    (2) A participating FFI or a reporting Model 1 FFI that is acting 
as the agent of the payee with respect to an obligation and receiving 
all payments from the withholding agent with respect to such obligation 
as an intermediary on behalf of the payee.
    (B) The certification from the broker must be in writing or in 
electronic form and contain all of the information required of a 
chapter 4 withholding statement described in paragraph 
(c)(3)(iii)(B)(3). Notwithstanding this paragraph (c)(9)(iii), a 
withholding agent may not rely upon a certification provided by a 
broker if it knows or has reason to know that the broker has not 
obtained valid documentation as represented or the information 
contained in the certification is otherwise inaccurate. A broker that 
chooses to provide a certification under this paragraph (c)(9)(iii) 
will be responsible for applying the rules set forth in the regulations 
under section 1471 and 1472 to the withholding certificates, written 
statements, or documentary evidence obtained from the payee and shall 
be liable for any underwithholding that occurs as a result of the 
broker's failure to reasonably apply such rules.
    (iv) Reliance on documentation and certifications provided between 
principals and agents--(A) In general. Subject to the conditions under 
Sec.  1.1474-1(a)(3), a withholding agent is permitted to use an agent 
to fulfill its chapter 4 obligations and such agent's actions are 
imputed to the principal. However, an agent that makes a payment 
pursuant to an agency arrangement (paying agent) is also a withholding 
agent with respect to the payment unless an exception under Sec.  
1.1473-(d) applies. Therefore, the paying agent will have its own 
obligation to determine the chapter 4 status of the payee and withhold 
upon the payment if required. Although a paying agent is generally a 
withholding agent for purposes of chapter 4, the financial accounts to 
which it makes payments are not necessarily financial accounts of the 
paying agent. See the rules under Sec.  1.1471-5(b)(5) to

[[Page 5926]]

determine when a financial institution maintains a financial account. 
In addition, the status of a payment as made with respect to an 
offshore obligation or as a preexisting obligation will be determined 
based on such obligation's status in relation to the principal. 
Further, the due diligence required with respect to the payment will be 
determined by the status of the principal and not the paying agent. 
Consequently, a payment that is made, for example, by a paying agent 
that is a foreign entity on behalf of a principal that is a U.S. 
withholding agent will be subject to the due diligence applicable to 
the principal. See Sec.  1.1474-1(a)(3) for rules regarding the 
reporting obligations of a principal and agent in the case of a payment 
made by an agent of behalf of a principal.
    (B) Reliance upon certification of the principal. An agent that 
makes a payment on behalf of a principal that it may treat, pursuant to 
paragraph (d) of this section, as a U.S. withholding agent, 
participating FFI, or reporting Model 1 FFI may rely upon a 
certification provided by the principal indicating that the principal 
has obtained valid documentation sufficient to determine the chapter 4 
status of the payee and may rely upon the principal's determination as 
to the payee's chapter 4 status. In such a case, the agent will be 
permitted to rely upon the certification provided by the principal when 
determining whether it is required to withhold on the payment and will 
not be liable for any underwithholding that occurs as a result of the 
principal's failure to properly determine the chapter 4 status of the 
payee unless the agent knows or has reason to know the certification 
provided by the principal is inaccurate.
    (C) Document sharing. In lieu of obtaining a certification from the 
principal as described in paragraph (c)(9)(iv)(B) of this section, or 
when reliance upon such certification is not permitted, an agent that 
makes a payment on behalf of a principal may rely upon copies of 
documentation provided to the principal with respect to the payment. 
However, in such case, both the principal and the agent are obligated 
to determine the chapter 4 status of the payee based upon the 
documentation and ensure that adequate withholding occurs with respect 
to the payment. While a principal is imputed the knowledge of the agent 
with respect to the payment, the agent is not imputed the knowledge of 
the principal.

    (D) Examples--(1) Example 1. Paying agent that does not collect 
documentation. A fund, P, that is a participating FFI contracts with 
a U.S. person, A, to make payments to its account holders with 
respect to their equity interests in P. P contracts with another 
agent, B, to obtain documentation sufficient to determine the 
chapter 4 status of such account holders. Based on the documentation 
it collects, B determines that none of P's account holders are 
subject to withholding. P provides a certification to A indicating 
that it has obtained documentation sufficient to determine the 
chapter 4 status of P's account holders and that each payee is not 
subject to withholding under chapter 4. As the actions of B, as P's 
agent, are attributed to P, P may provide a certification to A 
indicating that it has determined the chapter 4 status of its 
payees, even if it is B, and not P, who made the determinations. 
However, P will be liable for any underwithholding that results from 
a failure by B to reasonably apply the rules under chapter 4. A is 
permitted to rely upon the certification provided by P and, 
accordingly, is not required to withhold on the payments made to P's 
account holders and would not be liable for any underwithholding 
that results if the determinations made by B are incorrect unless A 
had reason to know that chapter 4 status claimed was inaccurate.
    (ii) Example 2. Paying agent that collects documentation. A 
fund, P, that is a participating FFI contracts with a U.S. person, 
A, to make a payment to its account holders on its behalf. P also 
contracts with A to obtain documentation sufficient to determine the 
chapter 4 status of P's account holders. Based on the documentation 
it collects, A determines that none of P's account holders are 
subject to withholding. As the actions of A, as P's agent, are 
imputed to P, P will be liable for any underwithholding that results 
from a failure by A to reasonably apply the rules under chapter 4. P 
is also required to retain the documentation upon which A relied in 
determining the chapter 4 status of its account holders. Because A 
performed the due diligence on behalf of P, A will have reason to 
know if any of the chapter 4 determinations made based on the 
documentation received were made incorrectly, and, as a withholding 
agent with respect to the payment, is liable, in addition to P, for 
any underwithholding that results from an incorrect determination 
that withholding was not required. This result applies regardless of 
whether A retains copies of the documentation obtained with respect 
to P's account holders or receives a certification from P indicating 
that P has obtained documentation sufficient to determine the 
chapter 4 status of its account holders and that each payee is not 
subject to withholding under chapter 4.

    (v) Reliance upon documentation for accounts acquired in merger or 
bulk acquisition for value. A withholding agent that acquires an 
account from a predecessor or transferor in a merger or bulk 
acquisition of accounts for value is permitted to rely upon valid 
documentation (or copies of valid documentation) collected by the 
predecessor or transferor. In addition, a withholding agent that 
acquires an account in a merger or bulk acquisition of accounts for 
value, other than a related party transaction, from a U.S. withholding 
agent, participating FFI that has completed all due diligence required 
under its agreement with respect to the accounts transferred, or a 
reporting Model 1 FFI that has completed all due diligence required 
pursuant to the applicable Model 1 IGA, may also rely upon the 
predecessor's or transferor's determination of the chapter 4 status of 
an account holder for a transition period of the lesser of six months 
from the date of the merger or until the acquirer knows that the claim 
of status is inaccurate or a change in circumstances occurs. At the end 
of the transition period, the acquirer will be permitted to rely upon 
the predecessor's determination as to the chapter 4 status of the 
account holder only if the documentation that the acquirer has for the 
account holder, including documentation obtained from the predecessor 
or transferor, supports the chapter 4 status claimed. An acquirer that 
discovers at the end of the transition period that the chapter 4 status 
assigned by the predecessor or transferor to the account holder was 
incorrect and, as a result, has not withheld as it would have been 
required to but for its reliance upon the predecessor's determination, 
will be required to withhold on future payments, if any, made to the 
account holder the amount of tax that should have been withheld during 
the transition period but for the erroneous classification as to the 
account holder's status. For purposes of this paragraph (c)(9)(v), a 
related party transaction is a merger or sale of accounts in which the 
acquirer is in the same expanded affiliated group as the predecessor or 
transferor either prior to or after the merger or acquisition or the 
predecessor or transferor (or shareholders of the predecessor or 
transferor) obtain a controlling interest in the acquirer or in a newly 
formed entity created for purposes of the merger or acquisition. See 
Sec.  1.1471-4(c)(2)(ii)(B) for an additional allowance for a 
participating FFI to rely upon the determination made by another 
participating FFI as to the chapter 4 status of an account obtained as 
part of a merger or bulk acquisition for value.
    (d) Documentation requirements to establish payee's chapter 4 
status. Unless the withholding agent knows or has reason to know 
otherwise, a withholding agent may rely on the provisions of this 
paragraph (d) to determine the chapter 4 status of a

[[Page 5927]]

payee (or other person that receives a payment). Except as otherwise 
provided in this paragraph (d), a withholding agent is required to 
obtain a valid withholding certificate or a Form W-9 from a payee in 
order to treat the payee as having a particular chapter 4 status. 
Paragraphs (d)(1) through (12) of this section indicate when it is 
appropriate for a withholding agent to rely upon a written statement, 
documentary evidence, or other information in lieu of a Form W-8 or W-
9. Paragraphs (d)(1) through (12) of this section also prescribe 
additional documentation requirements that must be met in certain cases 
in order to treat a payee as having a specific chapter 4 status and 
specific standards of knowledge that apply to a particular payee, in 
addition to the general standards of knowledge set forth in paragraph 
(e) of this section. This paragraph (d) also provides the circumstances 
in which special documentation rules are permitted with respect to 
preexisting obligations. A withholding agent may not rely on 
documentation described in this paragraph (d) if the documentation is 
not valid or cannot reliably be associated with the payment pursuant to 
the requirements of paragraph (c) of this section, or the withholding 
agent knows or has reason to know that such documentation is incorrect 
or unreliable as described in paragraphs (d) and (e) of this section. 
If the chapter 4 status of a payee cannot be determined under this 
paragraph (d) based on documentation received, a withholding agent must 
apply the presumption rules in paragraph (f) to determine the chapter 4 
status of the payee.
    (1) Reliance on pre-FATCA Form W-8. To establish a payee's status 
as a foreign individual, foreign government, or international 
organization, a withholding agent may rely upon a pre-FATCA Form W-8 in 
lieu of obtaining an updated version of the withholding certificate. To 
establish the chapter 4 status of a payee that is not a foreign 
individual, foreign government, or international organization, a 
withholding agent may, for payments made prior to January 1, 2017, rely 
upon a pre-FATCA Form W-8 in lieu of obtaining an updated version of 
the withholding certificate if the withholding agent has one or more 
forms of documentary evidence described in paragraphs (c)(5)(ii), as 
necessary, to establish the chapter 4 status of the payee and the 
withholding agent has obtained any additional documentation or 
information required for the particular chapter 4 status (such as 
withholding statements, certifications as to owners, or required 
documentation for underlying owners), as set forth under the specific 
payee rules in paragraphs (d)(2) through (12) of this section. See 
paragraph (d)(4)(ii) and (iv) of this section for specific requirements 
when relying upon a pre-FATCA Form W-8 for a participating FFI or 
registered deemed-compliant FFI. This paragraph (d)(1) does not apply 
to nonregistering local banks, FFIs with only low-value accounts, 
sponsored FFIs, owner-documented FFIs, territory financial institutions 
that are not the beneficial owners of the payment, or foreign central 
banks (other than a foreign central bank specifically identified as an 
exempt beneficial owner under a Model 1 IGA or Model 2 IGA).
    (2) Identification of U.S. persons--(i) In general. A withholding 
agent must treat a payee as a U.S. person if it has a valid Form W-9 
associated with the payee or if it must presume the payee is a U.S. 
person under the presumption rules set forth in paragraph (f) of this 
section. Consistent with the presumption rules in paragraph (f)(3) of 
this section, a withholding agent must treat a payee that has provided 
a valid Form W-9 as a specified U.S. person unless the Form W-9 
indicates that the payee is other than a specified U.S. person. 
Notwithstanding the foregoing, a withholding agent receiving a Form W-9 
indicating that the payee is other than a specified U.S. person must 
treat the payee as a specified U.S. person if the withholding agent 
knows or has reason to know that the payee's claim that it is other 
than a specified U.S. person is incorrect. For example, a withholding 
agent that receives a Form W-9 from a payee that is an individual would 
be required to treat the payee as a specified U.S. person regardless of 
whether the Form W-9 indicates that the payee is not a specified U.S. 
person, because an individual that is a U.S. person is not excepted 
from the definition of a specified U.S. person
    (ii) Reliance on documentary evidence. A withholding agent may also 
treat the payee as a U.S. person that is other than a specified U.S. 
person if the withholding agent has documentary evidence described in 
paragraphs (c)(5)(i)(C) and (D) of this section or general documentary 
evidence (as described in paragraph (c)(5)(ii)(A) of this section) that 
both establishes that the payee is a U.S. person and establishes 
(either through the documentation or the application of the presumption 
rules in Sec.  1.6049-4(c)(ii) or paragraph (f)(3) of this section) 
that the payee is an exempt recipient. For purposes of the previous 
sentence, an exempt recipient means with respect to a withholding agent 
other than a participating FFI or registered deemed-compliant FFI, an 
exempt recipient under Sec.  1.6049-4(c)(ii) or, with respect to a 
withholding agent that is a participating FFI or registered deemed-
compliant FFI, a U.S. person other than a specified U.S. person as 
described under Sec.  1.1473-1(c).
    (iii) Preexisting obligations. As an alternative to applying the 
rules in paragraphs (d)(2)(i) and (ii) of this section, a withholding 
agent that makes a payment with respect to a preexisting obligation may 
treat a payee as a U.S. person if it has a notation in its files that 
it has previously reviewed a Form W-9 that established that the payee 
is a U.S. person and has retained the payee's TIN. A withholding agent, 
other than a participating FFI or registered deemed-compliant FFI, may 
also treat a payee as a U.S. person if it has previously reviewed a 
Form W-9 or documentary evidence that established that the payee is a 
U.S. person and established (through the documentation or the 
application of the presumption rules in Sec.  1.6049-4(c)(ii)) that the 
payee is an exempt recipient for purposes of chapter 61.
    (3) Identification of individuals that are foreign persons--(i) In 
general. A withholding agent may treat a payee as an individual that is 
a foreign person if the withholding agent has a withholding certificate 
identifying the payee as such a person.
    (ii) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payee as an individual that is a foreign person if it obtains 
documentary evidence supporting the payee's claim of status as a 
foreign individual (as described in paragraph (c)(5)(i)) or if the 
payee is presumed to be an individual that is a foreign person under 
the presumption rules set forth in paragraph (f) of this section.
    (4) Identification of participating FFIs and registered deemed-
compliant FFIs--(i) In general. Except as otherwise provided in 
paragraph (d)(4)(ii) through (iv) of this section, a withholding agent 
may treat a payee as a participating FFI or registered deemed-compliant 
FFI only if the withholding agent has a withholding certificate 
identifying the payee as a participating FFI or registered deemed-
compliant FFI and the withholding certificate contains a GIIN for the 
payee that is verified against the published IRS FFI list in the manner 
described in paragraph (e)(3) of this section (indicating when a 
withholding agent may rely upon a GIIN). For payments made prior to 
January 1, 2016,

[[Page 5928]]

a participating FFI that is a sponsored FFI may provide the GIIN of its 
sponsoring entity on the withholding certificate if the sponsored FFI 
has not obtained a GIIN.
    (ii) Exception for payments made prior to January 1, 2017, with 
respect to preexisting obligations (transitional). For payments made 
prior to January 1, 2017, with respect to a preexisting obligation, a 
withholding agent may treat a payee as a participating FFI or 
registered deemed-compliant FFI if the payee has provided the 
withholding agent (either orally or in writing) its GIIN and indicated 
whether it is a participating FFI or a registered deemed-compliant FFI, 
and the withholding agent has verified the GIIN in the manner described 
in paragraph (e)(3) of this section.
    (iii) Exception for offshore obligations. A withholding agent that 
makes a payment, other than a payment of U.S. source FDAP income, with 
respect to an offshore obligation may treat the payee as a 
participating FFI or registered deemed-compliant FFI if the payee 
provides the withholding agent with its GIIN and states whether the 
payee is a participating FFI or a registered deemed-compliant FFI, and 
the withholding agent verifies the GIIN in the manner described in 
paragraph (e)(3) of this section. A withholding agent that makes a 
payment of U.S. source FDAP income with respect to an offshore 
obligation may treat the payee as a participating FFI or registered 
deemed-compliant FFI if--
    (A) The payee provides the withholding agent with--
    (1) A written statement that contains the payee's GIIN and states 
that the payee is the beneficial owner of the payment and a 
participating FFI or a registered deemed-compliant FFI, as appropriate; 
and
    (2) Documentary evidence supporting the payee's claim of foreign 
status; and
    (B) The withholding agent verifies the GIIN in the manner described 
in paragraph (e)(3) of this section.
    (iv) Exceptions for payments to reporting Model 1 FFIs.--(A) For 
payments made prior to January 1, 2015, a withholding agent may treat 
the payee as a reporting Model 1 FFI if it receives a withholding 
certificate from the payee indicating that the payee is a reporting 
Model 1 FFI and the country in which the payee is a reporting Model 1 
FFI, regardless of whether the certificate contains a GIIN for the 
payee.
    (B) For payments made prior to January 1, 2015, with respect to a 
preexisting obligation, a withholding agent may treat a payee as a 
reporting Model 1 FFI if it obtains a pre-FATCA Form W-8 from the 
payee, and the payee indicates (either orally or in writing) that it is 
a reporting Model 1 FFI and the country in which it is a reporting 
Model 1 FFI, regardless of whether the certificate contains a GIIN for 
the payee.
    (C) For payments made prior to January 1, 2015, with respect to an 
offshore obligation, a withholding agent may treat the payee as a 
reporting Model 1 FFI if the payee informs the withholding agent that 
the payee is a reporting Model 1 FFI and provides the country in which 
the payee is a reporting Model 1 FFI. In the case of a payment of U.S. 
source FDAP income, such payee must also provide a written statement 
that it is the beneficial owner and documentary evidence supporting the 
payee's claim of foreign status (as described in paragraph (c)(5)(i) of 
this section).
    (D) For payments made on or after January 1, 2015, that do not 
constitute U.S. source FDAP income, the withholding agent may continue 
to treat a payee as a reporting Model 1 FFI if the payee provides the 
withholding agent with its GIIN, either orally in writing, and the 
withholding agent verifies the GIIN in the manner described in 
paragraph (e)(3) of this section.
    (v) Reason to know. Except as otherwise provided in this paragraph 
(d)(4), a withholding certificate or written statement that identifies 
the payee as a participating FFI or registered deemed-compliant FFI but 
does not provide the payee's GIIN or provides a GIIN that does not 
appear on the current published IRS FFI list within 90 calendar days 
after the date that the claim is made, will be treated as invalid for 
purposes of chapter 4, and the payee will be treated as an undocumented 
payee beginning on the date that the form was submitted until valid 
documentation or a correct GIIN is provided. A withholding agent that 
discovers that the payee's GIIN does not appear on the published IRS 
FFI list within 90 calendar days after the date the claim is made and, 
as a result, has not withheld as it would have been required to but for 
its reliance upon the payee's claim of status as a participating FFI or 
registered deemed-compliant FFI, will be required to withhold on future 
payments, if any, made to the payee of the amount of tax that should 
have been withheld during the 90 day period but for the erroneous 
classification as to the payee's status. The withholding required 
pursuant the prior sentence is in addition to any withholding required 
under Sec.  1.1471-2(a) on those payments. A withholding agent that has 
withheld as required in the previous two sentences may apply 
reimbursement or set-off procedures, as described in Sec.  1.1474-2(a), 
if it is later determined that the payee appeared on the IRS FFI list 
as a participating FFI or registered deemed-compliant FFI at the time 
of payment.
    (5) Identification of certified deemed-compliant FFIs--(i) In 
general. Except as otherwise provided in this paragraph (d)(5), a 
withholding agent may treat a payee as a category of certified deemed-
compliant FFI, other than a sponsored FFI, if the withholding agent has 
a withholding certificate that identifies the payee as a certified 
deemed-compliant FFI, and the withholding certificate contains a 
certification by the payee that it meets the requirements to qualify as 
the type of certified deemed-compliant FFI identified on the 
withholding certificate.
    (ii) Sponsored, closely held investment vehicles--(A) In general. A 
withholding agent may treat a payee as a sponsored, closely held 
investment vehicle described in Sec.  1.1471-5(f)(2)(iii) if the 
withholding agent can reliably associate the payment with a withholding 
certificate that identifies the payee as a sponsored FFI and includes 
the sponsor's GIIN, which the withholding agent has verified against 
the published IRS FFI list in the manner described in paragraph (e)(3) 
of this section. In addition to the standards of knowledge rules 
indicated in paragraph (e) of this section, a withholding agent will 
have reason to know that the payee is not a sponsored, closely held 
investment vehicle described in Sec.  1.1471-5(f)(2)(iii) if its AML 
due diligence indicates that the payee has in excess of 20 individual 
investors that own direct and/or indirect interests in the payee.
    (B) Offshore obligations. A withholding agent that makes a payment 
with respect to an offshore obligation may treat a payee as a 
sponsored, closely held investment vehicle if it obtains a written 
statement that indicates that the payee is a sponsored FFI, and 
provides the GIIN of the sponsor, which the withholding agent has 
verified in the manner described in paragraph (e)(3) of this section. 
In the case of a payment of U.S. source FDAP income, the written 
statement must also indicate that the payee is the beneficial owner and 
must be supplemented with documentary evidence supporting the payee's 
claim of foreign status (as described in paragraph (c)(5)(i) of this 
section).
    (6) Identification of owner-documented FFIs--(i) In general. A 
withholding agent may treat a payee as an owner-documented FFI if all 
the

[[Page 5929]]

following requirements of paragraphs (d)(6)(i)(A) through (F) of this 
section are met. A withholding agent may not rely upon a withholding 
certificate to treat a payee as an owner-documented FFI, either in 
whole or in part, if the withholding certificate does not contain all 
of the information and associated documentation required by paragraphs 
(d)(6)(i)(A), (C), and (D) of this section.
    (A) The withholding agent has a withholding certificate that 
identifies the payee as an owner-documented FFI that is not acting as 
an intermediary;
    (B) The withholding agent is a U.S. financial institution, 
participating FFI, or reporting Model 1 FFI that agrees pursuant to 
Sec.  1.1471-5(f)(3) to act as a designated withholding agent with 
respect to the payee;
    (C) The payee submits to the withholding agent an FFI owner 
reporting statement that meets the requirements of paragraph (d)(6)(iv) 
of this section;
    (D) The payee submits to the withholding agent valid documentation 
meeting the requirements of paragraph (d)(6)(iii) of this section with 
respect to each person identified on the FFI owner reporting statement;
    (E) The withholding agent does not know or have reason to know that 
the payee (or any other FFI that is an owner of the payee and that the 
designated withholding agent is treating as an owner-documented FFI) 
maintains any financial account for a nonparticipating FFI; and
    (F) The withholding agent does not know or have reason to know that 
the payee is in an expanded affiliated group with any other FFI other 
than an FFI that is also treated as an owner-documented FFI by the 
withholding agent or that the FFI has any U.S. specified persons that 
own an equity interest in the FFI or a debt interest (other than a debt 
interest that is not a financial account or that has a balance or value 
not exceeding $50,000) in the FFI other than those identified on the 
FFI owner reporting statement described in paragraph (d)(6)(iv) of this 
section.
    (ii) Auditor's letter substitute. A payee may, in lieu of providing 
an FFI owner reporting statement and documentation for each owner of 
the FFI as described in paragraphs (d)(6)(i)(C) and (D) of this 
section, provide a letter from an auditor or an attorney that is 
licensed in the United States or whose firm has a location in the 
United States, signed no more than four years prior to the date of the 
payment, that certifies that the firm or representative has reviewed 
the payee's documentation with respect to all of its owners and debt 
holders described in paragraph (d)(6)(iv) of this section in accordance 
with Sec.  1.1471-4(c) and that the payee meets the requirements of 
Sec.  1.1471-5(f)(3). The payee must also provide an FFI owner 
reporting statement and a Form W-9, with any applicable waiver, for 
each specified U.S. person that owns a direct or indirect interest in 
the payee or that holds debt interests described in paragraph 
(d)(6)(iv) of this section. A withholding agent may rely upon the 
letter described in this paragraph (d)(6)(ii) if it does not know or 
have reason to know that any of the information contained in the letter 
in unreliable or incorrect.
    (iii) Documentation for owners and debt holders of payee. 
Acceptable documentation for an individual owning an equity in the 
payee or debt holders described in paragraph (d)(6)(iv) of this section 
means a valid withholding certificate, valid Form W-9 (including any 
necessary waiver), or documentary evidence establishing the foreign 
status of the individual as set forth in paragraph (d)(3) of this 
section. Acceptable documentation for a specified U.S. person means a 
valid Form W-9 (including any necessary waiver). Acceptable 
documentation for all other persons owning an equity or debt interest 
in the payee means documentation described in this paragraph (d), 
applicable to the chapter 4 status claimed by the person. The rules for 
reliably associating a payment with a withholding certificate or 
documentary evidence set forth in paragraph (c) of this section, the 
rules for payee documentation provided in this paragraph (d), and the 
standards of knowledge set forth in paragraph (e) of this section will 
apply to documentation submitted by the owners and debt holders by 
substituting the phrase ``owner of the payee'' or ``debt holder'' for 
``payee.''
    (iv) Content of FFI owner reporting statement. The FFI owner 
reporting statement provided by an owner-documented FFI must contain 
the information required by this paragraph (d)(6)(iv) and is subject to 
the general rules applicable to all withholding statements described in 
paragraph (c)(3)(iii)(B)(1) of this section. An FFI that is a 
partnership, simple trust, or grantor trust may substitute an NWP 
withholding statement described in Sec.  1.1441-5(c)(3)(iv) or a 
foreign simple trust or foreign grantor trust withholding statement 
described in Sec.  1.1441-5(e)(5)(iv) for the FFI owner reporting 
statement, provided that the NWP withholding certificate or foreign 
simple trust or foreign grantor trust withholding certificate contains 
all of the information required in this paragraph (d)(6)(iv). The owner 
reporting statement will expire on the last day of the third calendar 
year following the year in which the statement was provided to the 
withholding agent unless an exception in paragraph (c)(6)(ii) of this 
section (for example, accounts with a balance or value of $1,000,000 or 
less) or this paragraph (d)(6) applies. The owner-documented FFI will 
also be required to provide the withholding agent with an updated owner 
reporting statement if there is a change in circumstances as required 
under paragraph (c)(6)(ii)(E) of this section.
    (A) The FFI owner reporting statement must provide the following 
information:
    (1) The name, address, TIN (if any), and chapter 4 status of every 
individual and specified U.S. person that owns a direct or indirect 
equity interest in the payee (looking through all entities other than 
specified U.S. persons).
    (2) The name, address, TIN (if any), and chapter 4 status of every 
individual and specified U.S. person that owns a debt interest in the 
payee (including any indirect debt interest, which includes debt 
interests in any entity that directly or indirectly owns the payee or 
any direct or indirect equity interest in a debt holder of the payee), 
in either such case if the debt interest constitutes a financial 
account in excess of $50,000 (disregarding all such debt interests 
owned by participating FFIs, registered deemed-compliant FFIs, 
certified deemed-compliant FFIs, excepted NFFEs, exempt beneficial 
owners, or U.S. persons other than specified U.S. persons).
    (3) Any other information the withholding agent reasonably requests 
in order to fulfill its obligations under chapter 4.
    (B) The information on the FFI owner reporting statement may 
contain names of equity and debt holders that are prepopulated by the 
withholding agent based on prior information provided to the 
withholding agent by the payee if the prepopulated form instructs the 
payee to amend the statement if the contents are inaccurate, 
incomplete, or have changed, and the payee confirms in writing that the 
FFI owner reporting statement submitted to the withholding agent is 
accurate and complete.
    (C) The FFI owner reporting statement may be submitted in any form 
that meets the requirements of this paragraph, including a form used 
for purposes of AML due diligence.
    (v) Exception for preexisting obligations (transitional). A 
withholding agent may treat a payment made prior to January 1, 2017, 
with respect to a

[[Page 5930]]

preexisting obligation as made to an owner-documented FFI if the 
withholding agent has collected, for purposes of satisfying its AML due 
diligence, documentation with respect to each individual and specified 
U.S. person that owns a direct or indirect interest in the payee, other 
than an interest as a creditor, within four years of the date of 
payment, that documentation is sufficient to satisfy the AML due 
diligence requirements of the jurisdiction in which the withholding 
agent maintains the account, the withholding agent has sufficient 
information to report all specified U.S. persons that own an interest 
in the payee, and the withholding agent does not know, or have reason 
to know, that any nonparticipating FFI owns an equity interest in the 
FFI or that any nonparticipating FFI or specified U.S. person owns a 
debt interest in the FFI constituting a financial account in excess of 
$50,000.
    (vi) Exception for offshore obligations. A withholding agent that 
is making a payment, other than a payment of U.S. source FDAP income, 
with respect to an offshore obligation may, in lieu of obtaining a 
withholding certificate as otherwise required under paragraph 
(d)(6)(i)(A) of this section, rely upon a written statement that 
indicates the payee meets the requirements to qualify as an owner-
documented FFI under Sec.  1.1471-5(f)(3) and is not acting as an 
intermediary, if the withholding agent provides a written notice to the 
payee indicating that the payee is required to update the written 
statement and all associated documentation (such as the FFI owner 
reporting statement and underlying documentation) within 30 days of a 
change in circumstances.
    (vii) Exception for certain offshore obligations of $1,000,000 or 
less--(A) A withholding agent may treat the payment as being made to an 
owner-documented FFI if--
    (1) The payment is made with respect to an offshore obligation that 
has a balance or value not exceeding $1,000,000 on the later of 
December 31, 2013, or the last day of the calendar year in which the 
account was opened, and the last calendar day of each subsequent year 
preceding the payment, applying the aggregation principles of Sec.  
1.1471-5(b)(4);
    (2) The withholding agent has collected documentation or a 
certification as to the payee's owners (either for purposes of 
complying with its AML due diligence or for purposes of satisfying the 
requirements of this paragraph (d)(6)(vii)) sufficient to identify 
every individual and specified U.S. person that owns any direct or 
indirect interest in the payee (other than an interest as a creditor) 
and determine the chapter 4 status of such person;
    (3) The documentation described in paragraph (d)(6)(vii)(A)(2) of 
this section is sufficient to satisfy the AML due diligence 
requirements of the jurisdiction in which the withholding agent 
maintains the account (and such jurisdiction is a FATF-compliant 
jurisdiction);
    (4) The withholding agent has sufficient information to report all 
specified U.S. persons that own an interest in the payee in accordance 
with Sec.  1.1474-1(d); and
    (5) The withholding agent does not know, or have reason to know, 
that the payee has any contingent beneficiaries or designated classes 
with unidentified beneficiaries or owners, that any nonparticipating 
FFI owns a direct or indirect equity interest in the payee, or that any 
specified U.S. persons or nonparticipating FFIs own a debt interest 
constituting a financial account in excess of $50,000 in the payee 
(other than specified U.S. persons that the withholding agent has 
sufficient information to report).
    (B) For example, a withholding agent that is required to obtain a 
certification from the payee identifying all persons owning an interest 
in the payee as part of its AML due diligence will not be required to 
obtain an FFI owner reporting statement, provided the other conditions 
of this paragraph (d)(6)(vii) are met. On the other hand, a withholding 
agent that has only obtained documentation for persons owning a certain 
threshold percentage of the payee will be required to obtain additional 
documentation to satisfy the requirements of this paragraph 
(d)(6)(vii). A withholding agent that treats a payee as an owner-
documented FFI pursuant to this paragraph (d)(6)(vii) will not be 
required to obtain new documentation, including the FFI owner reporting 
statement, until there is a change in circumstances or until the 
account balance or value exceeds $1,000,000 on the last day of the 
calendar year.
    (7) Nonreporting IGA FFIs--(i) In general. A withholding agent may 
treat a payee as a nonreporting IGA FFI if it has a withholding 
certificate identifying the payee, or the relevant branch of the payee, 
as a nonreporting IGA FFI.
    (ii) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payee as a nonreporting IGA FFI if it can reliably associate the 
payment with a written statement identifying the payee (or the relevant 
branch of the payee) as a nonreporting IGA FFI and, with respect to a 
payment of U.S. source FDAP income, the written statement indicates 
that the payee is the beneficial owner of the income and is accompanied 
by documentary evidence supporting a claim of foreign status (as 
described in paragraph (c)(5)(i) of this section). A withholding agent 
that makes a payment with respect to an offshore obligation may also 
treat a payee as a nonreporting IGA FFI if the withholding agent has a 
permanent residence address for the payee, or an address of the 
relevant branch of the payee, and has obtained a notification, either 
orally or in writing, indicating that the payee is not acting as an 
intermediary and general documentary evidence (as described in 
paragraph (c)(5)(ii)(A) of this section) that provides the withholding 
agent with sufficient information to reasonably determine that the 
payee is an entity listed as a nonreporting IGA FFI pursuant to a Model 
1 or Model 2 IGA.
    (8) Identification of nonparticipating FFIs--(i) In general. A 
withholding agent is required to treat a payee as a nonparticipating 
FFI if the withholding agent can reliably associate the payment with a 
withholding certificate identifying the payee as a nonparticipating 
FFI, the withholding agent knows or has reason to know that the payee 
is a nonparticipating FFI, or the withholding agent is required to 
treat the payee as a nonparticipating FFI under the presumption rules 
described in paragraph (f) of this section.
    (ii) Special documentation rules for payments made to an exempt 
beneficial owner through a nonparticipating FFI. A withholding agent 
may treat a payment made to a nonparticipating FFI as beneficially 
owned by an exempt beneficial owner if the withholding agent can 
reliably associate the payment with--
    (A) A withholding certificate that identifies the payee as a 
nonparticipating FFI that is either acting as an intermediary or is a 
flow-through entity; and
    (B) An exempt beneficial owner withholding statement that meets the 
requirements of paragraphs (c)(3)(iii)(B)(1) and (4) of this section 
and contains the associated documentation necessary to establish the 
chapter 4 status of the exempt beneficial owner in accordance with 
paragraph (d)(9) of this section as if the exempt beneficial owner were 
the payee.
    (9) Identification of exempt beneficial owners--(i) Identification 
of foreign governments, governments of U.S.

[[Page 5931]]

territories, international organizations, and foreign central banks of 
issue--(A) In general. A withholding agent may treat a payee as a 
foreign government, government of a U.S. territory, international 
organization, or foreign bank of central issue if it has a withholding 
certificate that identifies the payee as such an entity, indicates that 
the payee is the beneficial owner of the payment, and for a government 
or foreign central bank, indicates that the payee is not engaged in 
commercial activities with respect to the payments or accounts 
identified on the form. A withholding agent may treat a payee as an 
international organization without requiring a withholding certificate 
if the name of the payee is one that is designated as an international 
organization by executive order (pursuant to 22 U.S.C. 288 through 
288f) and other facts surrounding the transaction reasonably indicate 
that the international organization is not receiving the payment as an 
intermediary on behalf of another person. A withholding agent may treat 
a payee as an exempt beneficial owner pursuant to a Model 1 IGA or 
Model 2 IGA if it has a withholding certificate that identifies the 
payee as such an entity and indicates that the payee is the beneficial 
owner of the payment.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment, other than a payment of U.S. source FDAP income, with 
respect to an offshore obligation may treat a payee as a foreign 
government, government of a U.S. territory, international organization, 
or foreign central bank of issue if the payee provides a written 
statement that it is such an entity and the written statement indicates 
that the payee receives the payment as a beneficial owner (within the 
meaning provided in Sec.  1.1471-6). A written statement provided by a 
foreign central bank of issue must also state that the foreign central 
bank of issue does not receive the payment in connection with a 
commercial activity as provided in Sec.  1.1471-6(h).
    (C) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment, other than a payment of U.S. source FDAP 
income, with respect to an offshore obligation that is also a 
preexisting obligation may treat the payee as a foreign government, 
government of a U.S. territory, international organization, or foreign 
central bank of issue if--
    (1) The payee is generally known to the withholding agent to be, 
the payee's name and the facts surrounding the payment reasonably 
indicate, or the withholding agent has preexisting account documentary 
evidence (as described in paragraph (c)(5)(ii)(B) of this section) that 
reasonably indicates that the payee is a foreign government or 
government of a U.S territory, a political subdivision of a foreign 
government or government of a U.S. territory, any wholly owned agency 
or instrumentality of any one or more of the foregoing, an 
international organization, a foreign central bank of issue, or the 
Bank for International Settlements; and
    (2) The withholding agent does not know that the payee is not the 
beneficial owner, within the meaning of Sec.  1.1471-6(b) through (e) 
(disregarding any presumption that a financial institution is assumed 
to be an intermediary absent documentation indicating otherwise) or a 
foreign central bank of issue receiving the payment in connection with 
a commercial activity.
    (ii) Identification of retirement funds--(A) In general. A 
withholding agent may treat a payee as a retirement fund described in 
Sec.  1.1471-6(f) if it has a withholding certificate in which the 
payee certifies that it is a retirement fund meeting the requirements 
of Sec.  1.1471-6(f).
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payment as being made to a retirement fund described in Sec.  1.1471-
6(f) if it obtains a written statement in which the payee certifies 
that it is a retirement fund under the laws of its local jurisdiction 
meeting the requirements of Sec.  1.1471-6(f) and, with respect to a 
payment of U.S. source FDAP income, documentary evidence supporting a 
claim of foreign status (as described in paragraph (c)(5)(i) of this 
section). A withholding agent that makes a payment with respect to an 
offshore obligation may also treat the payment as made to a retirement 
fund if it obtains general documentary evidence (as described in 
paragraph (c)(5)(ii)(A) of this section) that provides the withholding 
agent with sufficient information to establish that the payee is a 
retirement fund meeting the requirements of Sec.  1.1471-6(f).
    (C) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation, may treat the payee as a retirement 
fund described in Sec.  1.1471-6(f) if the withholding agent has 
general documentary evidence or preexisting account documentary 
evidence (as described in paragraphs (c)(5)(ii)(A) or (B)) that 
establishes that the payee is a foreign entity that qualifies as a 
retirement fund in the country in which the payee is organized.
    (iii) Identification of entities wholly owned by exempt beneficial 
owners. A withholding agent may treat a payee as an entity described in 
Sec.  1.1471-6(g) (referring to certain entities wholly owned by exempt 
beneficial owners) if the withholding agent has--
    (A) A withholding certificate or, for a payment made with respect 
to an offshore obligation, a written statement that identifies the 
payee as an investment entity that is the beneficial owner of the 
payment;
    (B) An owner reporting statement that contains the name, address, 
TIN (if any), chapter 4 status (identifying the type of exempt 
beneficial owner), and a description of the type of documentation (Form 
W-8 or other documentary evidence) provided to the withholding agent 
for every person that owns a direct equity interest, or a debt interest 
constituting a financial account, in the payee, and that is subject to 
the general rules applicable to all withholding statements described in 
paragraph (c)(3)(iii)(B)(1) of this section; and
    (C) Documentation for every person identified on the owner 
reporting statement establishing, pursuant to the documentation 
requirements described in this paragraph (d)(9), that such person is an 
exempt beneficial owner (without regard to whether the person is a 
beneficial owner of the payment).
    (10) Identification of territory financial institutions--(i) 
Identification of territory financial institutions that are beneficial 
owners--(A) In general. A withholding agent may treat a payee as a 
territory financial institution if the withholding agent has a 
withholding certificate identifying the payee as a territory financial 
institution that beneficially owns the payment. See paragraph 
(d)(11)(viii) of this section for rules for documenting territory 
NFFEs.
    (B) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat the payee as a territory 
financial institution if the withholding agent receives written 
notification, whether signed or not, that the payee is the beneficial 
owner of the payment and the withholding agent has general documentary 
evidence (as described in paragraph (c)(5)(ii)(A) of this section) or 
preexisting account documentary evidence (as described in paragraph 
(c)(5)(ii)(B) of this section) establishing that the payee was 
organized or incorporated under the laws of any U.S. territory and is a 
depository institution, custodial

[[Page 5932]]

institution, or specified insurance company.
    (ii) Identification of territory financial institutions acting as 
intermediaries or that are flow-through entities. A withholding agent 
may treat a payment as being made to a territory financial institution 
that is acting as an intermediary or that is a flow-through entity if 
the withholding agent has an intermediary withholding certificate or 
flow-through withholding certificate as described in paragraph 
(c)(3)(iii) of this section that identifies the person who receives the 
payment as a territory financial institution. A withholding agent that 
obtains the documentation described in the preceding sentence may treat 
the territory financial institution as the payee if the withholding 
certificate contains a certification that the territory financial 
institution agrees to be treated as a U.S. person with respect to the 
payment. If the withholding certificate does not contain such a 
certification, then the withholding agent must treat the person on 
whose behalf the territory financial institution receives the payment 
as the payee. See paragraph (c)(3)(iii) of this section for additional 
documentation that must accompany the withholding certificate of the 
territory financial institution in this case.
    (iii) Reason to know. In addition to the general standards of 
knowledge described in paragraph (e) of this section, a withholding 
agent will have reason to know that an entity is not a territory 
financial institution if the withholding agent has: a current residence 
or mailing address, either in the entity's account files or on 
documentation provided by the payee, for the entity that is outside the 
U.S. territory in which the entity claims to be organized; a current 
telephone number for the payee that has a country code other than the 
country code for the U.S. territory or has an area code other than the 
area code(s) of the applicable U.S. territory and no telephone number 
for the payee in the applicable U.S. territory; or standing 
instructions for the withholding agent to pay amounts from its account 
to an address or account outside the applicable U.S. territory. A 
withholding agent that has knowledge of a current address, current 
telephone number, or standing payment instructions for the entity 
outside of the applicable U.S. territory, may nevertheless treat the 
entity as a territory financial institution if it obtains documentary 
evidence that establishes that the entity was organized in the 
applicable U.S. territory.
    (11) Identification of excepted NFFEs--(i) Identification of 
excepted nonfinancial group entities--(A) In general. A withholding 
agent may treat a payee as an excepted nonfinancial group entity 
described in Sec.  1.1471-5(e)(5)(i) if the withholding agent has a 
withholding certificate identifying the payee as such an entity.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payee as an excepted nonfinancial group entity described in Sec.  
1.1471-5(e)(5)(i) if the withholding agent obtains:
    (1) A written statement in which the payee certifies that it is a 
foreign entity operating primarily as an excepted nonfinancial group 
entity for a group that primarily engages in a business other than a 
financial business described in Sec.  1.1471-5(e)(4) and, with respect 
to a payment of U.S. source FDAP income, documentary evidence 
supporting a claim of foreign status (as described in paragraph 
(c)(5)(i) of this section); or
    (2) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) that provides the withholding agent with 
sufficient information to establish that the payee is an excepted 
nonfinancial group entity described in Sec.  1.1471-5(e)(5)(i).
    (ii) Identification of excepted nonfinancial start-up companies--
(A) In general. A withholding agent may treat a payee as an excepted 
nonfinancial start-up company described in Sec.  1.1471-5(e)(5)(ii) if 
the withholding agent has a withholding certificate that identifies the 
payee as a start-up company that intends to operate as other than a 
financial institution and the withholding certificate provides a 
formation date for the payee that is less than 24 months prior to the 
date of the payment.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payee as an excepted nonfinancial start-up company described in Sec.  
1.1471-5(e)(5)(ii) if it obtains--
    (1) A written statement from the payee in which the payee certifies 
that it is a foreign entity formed for the purpose of operating a 
business other than that of a financial institution and provides the 
entity's formation date which was less than 24 months prior to the date 
of the payment and, with respect to a payment of U.S. source FDAP 
income, documentary evidence supporting a claim of foreign status (as 
described in paragraph (c)(5)(i) of this section); or
    (2) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) that provides the withholding agent with 
sufficient information to establish that the payee is a foreign entity 
other than a financial institution and has a formation date which is 
less than 24 months prior to the date of the payment.
    (C) Exception for preexisting offshore obligations. A withholding 
agent may treat a payment made with respect to an offshore obligation 
that is also a preexisting obligation as made to a start-up company 
described in Sec.  1.1471-5(e)(5)(ii) if the withholding agent has 
general documentary evidence (as described in paragraph (c)(5)(ii)(A) 
of this section) or preexisting account documentary evidence (as 
described in paragraph (c)(5)(ii)(B) of this section) that provides the 
withholding agent sufficient information to establish that the payee 
is, or intends to be, engaged in a business other than as a financial 
institution and establishes that the payee is a foreign entity that was 
organized less than 24 months prior to the date of the payment.
    (iii) Identification of excepted nonfinancial entities in 
liquidation or bankruptcy--(A) In general. A withholding agent may 
treat a payee as an excepted nonfinancial entity in liquidation or 
bankruptcy, as described in Sec.  1.1471-5(e)(5)(iii), if the 
withholding agent has a withholding certificate that identifies the 
payee as such an entity and the withholding agent has no knowledge that 
the payee has claimed to be such an entity for more than three years. A 
withholding agent may continue to treat a payee as an entity described 
in this paragraph for longer than three years if it obtains, in 
addition to a withholding certificate, documentary evidence such as a 
bankruptcy filing or other public document that supports the payee's 
claim that it remains in liquidation or bankruptcy.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payee as an excepted nonfinancial entity in liquidation or bankruptcy, 
as described in Sec.  1.1471-5(e)(5)(iii) if the withholding agent has 
general documentary evidence (as described in paragraph (c)(5)(ii)(A) 
of this section) or a copy of a bankruptcy filing, or similar 
documentation, establishing that the payee is a foreign entity in 
liquidation or bankruptcy and establishing that prior to the 
liquidation or bankruptcy filing, the payee was engaged in a business 
other than that of a financial institution. A withholding agent may 
also treat the payee with respect to an offshore obligation as an 
excepted

[[Page 5933]]

nonfinancial entity in liquidation or bankruptcy, as described in Sec.  
1.1471-5(e)(5)(iii), if the withholding agent obtains a written 
statement stating that the payee is a foreign entity in the process of 
liquidating or reorganizing with the intent to continue or recommence 
its former business as a nonfinancial institution, the withholding 
agent has no knowledge that the payee has claimed to be such an entity 
for more than three years (unless the withholding agent has obtained 
additional documentary evidence to support the claim that the entity 
remains in bankruptcy or liquidation), and, with respect to a payment 
of U.S. source FDAP income, documentary evidence supporting a claim of 
foreign status (as described in paragraph (c)(5)(i) of this section).
    (C) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat a payee as an excepted 
nonfinancial entity in liquidation or bankruptcy, as described in Sec.  
1.1471-5(e)(5)(iii), if the withholding agent has preexisting account 
documentary evidence (as described in paragraph (c)(5)(ii)(B) of this 
section) that unambiguously indicates that the payee is not a financial 
institution and is a foreign entity that entered liquidation or 
bankruptcy within the three years preceding the date of the payment.
    (iv) Identification of section 501(c) organizations--(A) In 
general. A withholding agent may treat a payee as a 501(c) organization 
described in Sec.  1.1471-5(e)(5)(v) if the withholding agent can 
reliably associate the payment with a withholding certificate that 
identifies the payee as a section 501(c) organization and the payee 
provides either a certification that the payee has been issued a 
determination letter by the IRS that is currently in effect concluding 
that the payee is a section 501(c) organization and providing the date 
of the letter, or a copy of an opinion from U.S. counsel certifying 
that the payee is a section 501(c) organization (without regard to 
whether the payee is a foreign private foundation).
    (B) Reason to know. A withholding agent must cease to treat a 
foreign organization's claim that it is a section 501(c) organization 
as valid beginning on the earlier of the date on which such agent knows 
that the IRS has given notice to such foreign organization that it is 
not a section 501(c) organization or 90 days after the date on which 
the IRS gives notice to the public that such foreign organization is 
not a section 501(c) organization. Further, a withholding agent will 
have reason to know that a payee is not a section 501(c) organization 
if it has determined, pursuant to its AML due diligence, that the payee 
has beneficial owners (as defined for purposes of the AML due 
diligence).
    (v) Identification of non-profit organizations--(A) In general. A 
withholding agent may treat a payee as a non-profit organization 
described in Sec.  1.1471-5(e)(5)(vi) if the withholding agent has a 
withholding certificate that identifies the payee as a non-profit 
organization.
    (B) Exception for offshore obligations. A withholding agent may 
treat a payment with respect to an offshore obligation as made to a 
nonprofit organization without obtaining a withholding certificate for 
the payee if the payee--
    (1) Has provided a written statement indicating that the payee is a 
non-profit organization described in Sec.  1.1471-5(e)(5)(vi) and, with 
respect to a payment of U.S. source FDAP income, has provided 
documentary evidence supporting a claim of foreign status (as described 
in paragraph (c)(5)(i) of this section); or
    (2) Is required to be reported by the withholding agent as a tax-
exempt charitable organization under the information reporting laws of 
the country in which the account is maintained or is permitted an 
exemption from withholding due to its status as a tax exempt charitable 
organization under the laws of the country in which the account is 
maintained, and the withholding agent obtains general documentary 
evidence (as described in paragraph (c)(5)(ii)(A) of this section) 
establishing that the payee was organized for charitable purposes in 
the same country in which the account is maintained by the withholding 
agent for the purposes described in Sec.  1.1471-5(e)(5)(vi) and that 
the payee has no beneficial owners (as that term is used for purposes 
of that country's AML due diligence).
    (C) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat the payee as a nonprofit 
organization described in Sec.  1.1471-5(e)(5)(vi) if the payee--
    (1) Provides a letter of local counsel that certifies that the 
payee qualifies as a tax-exempt entity in its local jurisdiction; or
    (2) Provides a letter issued by the tax authority of the country in 
which the payee is organized or a statement provided on the Web site of 
such tax authority indicating that the payee is a tax-exempt entity or 
charitable organization in the payee's country of organization.
    (D) Reason to know. A withholding agent will have reason to know 
that a payee is not a nonprofit organization if it has determined, 
pursuant to its AML due diligence, that the payee has beneficial owners 
(as defined for purposes of the AML due diligence).
    (vi) Identification of NFFEs that are publicly traded corporations. 
A withholding agent may treat a payee as an NFFE described in Sec.  
1.1472-1(c)(1)(i) (applying to an entity the stock of which is 
regularly traded on an established securities market) if it has a 
withholding certificate that certifies that the payee is such an entity 
and provides the name of a securities exchange upon which the payee's 
stock is regularly traded.
    (A) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payee as an NFFE described in Sec.  1.1472-1(c)(1)(i) if the 
withholding agent obtains--
    (1) A written statement that the payee is a foreign corporation 
that is not a financial institution, that its stock is regularly traded 
on an established securities market, the name of one of the exchanges 
upon which the payee's stock is traded, and, with respect to a payment 
of U.S. source FDAP income, documentary evidence supporting a claim of 
foreign status (as described in paragraph (c)(5)(i) of this section); 
or
    (2) Any documentation establishing that the payee is listed on a 
public securities exchange or on a stock market index and general 
documentary evidence (as described in paragraph (c)(5)(ii)(A) of this 
section) establishing that the payee is a foreign corporation other 
than a financial institution.
    (B) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat the payee as an entity 
described in Sec.  1.1472-1(c)(1)(i) if the withholding agent has any 
documentation confirming that the payee is listed on a public 
securities exchange or on a stock market index and preexisting account 
documentary evidence (as described in paragraph (c)(5)(ii)(B) of this 
section) establishing that the payee is a foreign corporation other 
than a financial institution.
    (vii) Identification of NFFE affiliates. A withholding agent may 
treat a payee as an NFFE described in Sec.  1.1472-1(c)(1)(ii) 
(applying to an affiliate of an entity the stock of which is regularly

[[Page 5934]]

traded on an established exchange) if it has a beneficial owner 
withholding certificate that identifies the payee as a foreign 
corporation that is an affiliate of an entity, described Sec.  1.1472-
1(c)(1)(i), whose stock is regularly traded on an established exchange 
and provides the name of the entity that is regularly traded and one of 
the exchanges upon which the entity's stock is listed.
    (A) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payment as being made to an NFFE described in Sec.  1.1472-1(c)(1)(ii) 
if the withholding agent obtains--
    (1) Documentary evidence or other information confirming that the 
payee is affiliated with an entity listed on a public securities 
exchange or on a stock market index and general documentary evidence 
(as described in paragraph (c)(5)(ii)(A) of this section) that 
indicates that the payee is a foreign corporation other than a 
financial institution; or
    (2) A written statement that the payee is a foreign corporation 
that is not a financial institution, that the payee is an affiliate of 
another nonfinancial entity whose stock is regularly traded on an 
established securities exchange, providing the name of the payee's 
affiliate and one of the exchanges upon which the affiliate's stock is 
traded and, in the case of a payment of U.S. source FDAP income, 
documentary evidence supporting the payee's claim of foreign status (as 
described in paragraph (c)(5)(i) of this section).
    (B) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat the payee as an NFFE 
described in Sec.  1.1472-1(c)(1)(ii) if the withholding agent has--
    (1) Documentation or other information confirming that the payee is 
affiliated with a corporation that is listed on a public securities 
exchange or on a stock market index;
    (2) Preexisting account documentary evidence (as described in 
paragraph (c)(5)(ii)(B) of this section) that unambiguously indicates 
that the payee is a corporation that is not a financial institution; 
and
    (3) In the case of a payment of U.S. source FDAP income, 
documentary evidence supporting the payee's claim of foreign status (as 
described in paragraph (c)(5)(i) of this section).
    (viii) Identification of excepted territory NFFEs. A withholding 
agent may treat a payee as an excepted territory NFFE described in 
Sec.  1.1472-1(c)(1)(iii) if it has a withholding certificate that 
identifies the payee as an NFFE that was organized in a U.S. territory 
and includes a certification for chapter 4 purposes that all of its 
owners are bona fide residents of that U.S. territory.
    (A) Exception for payments made prior to January 1, 2017, with 
respect to preexisting obligations of $1,000,000 or less 
(transitional). A withholding agent that makes a payment prior to 
January 1, 2017, with respect to a preexisting obligation with a 
balance or value not exceeding $1,000,000 on December 31, 2013, and the 
last day of each subsequent calendar year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4)(iii), may 
treat a payee as an excepted territory NFFE described in Sec.  1.1472-
1(c)(1)(iii) if the withholding agent--
    (1) Has a pre-FATCA Form W-8 identifying the payee as a foreign 
entity with a permanent residence address in a U.S. territory; and
    (2) Has general documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section), preexisting account documentary 
evidence (as described in paragraph (c)(5)(ii)(B) of this section), or 
a prospectus establishing that the payee is an entity other than a 
depository institution, custodial institution, or specified insurance 
company; and
    (3) Is subject, with respect to such obligation, to the laws of a 
FATF-compliant jurisdiction and as part of its AML due diligence has 
not identified any owners of the payee that are not bona fide residents 
of the U.S. territory in which the payee is organized.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat a 
payment as being made to an excepted territory NFFE described in Sec.  
1.1472-1(c)(1)(iii) if it has--
    (1) A written statement providing that the payee is an entity other 
than a depository institution, custodial institution, or specified 
insurance company, was organized in a U.S. territory, and is wholly 
owned by one or more bona fide residents of that U.S. territory, and, 
with respect to a payment of U.S. source FDAP income, the written 
statement must indicate that the payee is the beneficial owner of the 
income and be accompanied by documentary evidence supporting a claim of 
foreign status (as described in paragraph (c)(5)(i) of this section); 
or
    (2) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) or a prospectus establishing that the 
payee is an entity other than a depository institution, custodial 
institution, or specified insurance company, establishing that the 
payee was organized in a U.S. territory, and establishing that the 
payee is wholly owned by one or more bona fide residents of that U.S. 
territory.
    (C) Exception for preexisting offshore obligations of $1,000,000 or 
less. A withholding agent that makes a payment with respect to an 
offshore obligation that is also a preexisting obligation with a 
balance or value not exceeding $1,000,000 on December 31, 2013, (or the 
effective date of the FFI agreement for a withholding agent that is a 
participating FFI) and the last day of each subsequent calendar year 
preceding the payment, applying the aggregation principles of Sec.  
1.1471-5(b)(4)(iii), may rely upon its review conducted for AML due 
diligence purposes to determine whether the owners of the payee are 
bona fide residents of the U.S. territory in which the payee is 
organized, in lieu of obtaining a written statement or documentary 
evidence described in paragraph (d)(11)(viii)(B) of this section. The 
preceding sentence applies only if the withholding agent is subject, 
with respect to such account, to the laws of a FATF-compliant 
jurisdiction and has identified the residence of the owners. The 
withholding agent relying upon this paragraph (d)(11)(viii)(C) must 
still obtain a written statement, documentary evidence, as provided in 
paragraph (d)(11)(viii)(B) of this section, or preexisting account 
documentary evidence (as described in paragraph (c)(5)(ii)(B) of this 
section) establishing that the payee is an entity other than a 
depository institution, custodial institution, or specified insurance 
company organized in a U.S. territory.
    (ix) Identification of active NFFEs. A withholding agent may treat 
a payee as an active NFFE described in Sec.  1.1472-1(c)(1)(iv) if it 
has a withholding certificate identifying the payee as an active NFFE.
    (A) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payee as an active NFFE if the withholding agent has--
    (1) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) providing sufficient information to 
determine that the payee is a foreign entity engaged in an active trade 
or business other than that of a financial institution; or
    (2) A written statement stating that the payee is a foreign entity 
engaged in an active business other than that of a financial 
institution and, in the case of a payment of U.S. source FDAP income,

[[Page 5935]]

documentary evidence supporting the payee's claim of foreign status (as 
described in paragraph (c)(5)(i) of this section).
    (B) Exception for preexisting offshore obligations. A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation may treat the payee as an active NFFE 
if the withholding agent has preexisting account documentary evidence 
(as described in paragraph (c)(5)(ii)(B) of this section) that 
unambiguously indicates that the payee is a foreign entity engaged in a 
trade or business other than that of a financial institution and, in 
the case of a payment of U.S. source FDAP income, documentary evidence 
supporting the payee's claim of foreign status (as described in 
paragraph (c)(5)(i) of this section).
    (C) Limit on reason to know. A withholding agent relying on 
documentary evidence to determine that a payee is an active NFFE will 
not be required to determine that the payee meets the income and asset 
thresholds but rather must determine only that the payee is primarily 
engaged in a business other than that of a financial institution.
    (12) Identification of passive NFFEs. A withholding agent may treat 
a payment as having been made to a passive NFFE if it has a withholding 
certificate that identifies the payee as a passive NFFE.
    (i) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payment as made to a passive NFFE if the withholding agent has--
    (A) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) for the payee providing sufficient 
information to determine that the payee is a foreign entity that is not 
a financial institution; or
    (B) A written statement that the payee is a foreign entity that is 
not a financial institution and, for a payment of U.S. source FDAP 
income, documentary evidence supporting the payee's claim of foreign 
status (as described in paragraph (c)(5)(i) of this section).
    (ii) Special rule for preexisting offshore obligations. A 
withholding agent that makes a payment with respect to an offshore 
obligation that is also a preexisting obligation may treat the payee as 
a passive NFFE if the withholding agent has preexisting account 
documentary evidence (as described in paragraph (c)(5)(ii)(B) of this 
section) providing sufficient information to determine that the payee 
is a foreign entity that is not a financial institution and, with 
respect to a payment of U.S. source FDAP income, documentary evidence 
supporting the payee's claim of foreign status (as described in 
paragraph (c)(5)(i) of this section).
    (iii) Required owner certification for passive NFFEs--(A) In 
general. Unless it is a WP or WT, a passive NFFE will be required to 
provide to the withholding agent either a written certification 
(contained on a withholding certificate or in a written statement) that 
it does not have any substantial U.S. owners or the name, address, and 
TIN of each substantial U.S. owner of the NFFE to avoid being withheld 
upon under Sec.  1.1472-1(b).
    (B) Exception for preexisting obligations of $1,000,000 or less 
(transitional). A withholding agent that makes a payment prior to 
January 1, 2017, with respect to a preexisting obligation with a 
balance or value not exceeding $1,000,000 on December 31, 2013, and the 
last day of each subsequent calendar year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4)(iii), may 
rely upon its review conducted for AML due diligence purposes to 
identify any substantial U.S. owners of the payee in lieu of obtaining 
the certification or information required in paragraph (d)(12)(iii)(A) 
of this section if the withholding agent is subject, with respect to 
such obligation, to the laws of a FATF-compliant jurisdiction and has 
identified the residence of any controlling persons (within the meaning 
of the withholding agent's AML due diligence rules). A withholding 
agent that makes a payment with respect to an offshore obligation that 
is also a preexisting obligation with a balance or value not exceeding 
$1,000,000 on December 31, 2013, (or the effective date of the FFI 
agreement for a withholding agent that is a participating FFI) and the 
last day of each subsequent calendar year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4)(iii), may 
rely upon its review conducted for AML due diligence purposes to 
identify any substantial U.S. owners of the payee in lieu of obtaining 
the certification or information required in paragraph (d)(12)(iii)(A) 
of this section if the withholding agent is subject, with respect to 
such obligation, to the laws of a FATF-compliant jurisdiction and has 
identified the residence of any controlling persons (within the meaning 
of the withholding agent's AML due diligence rules).
    (e) Standards of knowledge--(1) In general. The standards of 
knowledge discussed in this section apply for purposes of determining 
the chapter 4 status of payees, beneficial owners, intermediaries, 
flow-through entities, and persons that own an interest in an owner-
documented FFI. A withholding agent shall be liable for tax, interest, 
and penalties to the extent provided under section 1474 and the 
regulations under that section if it fails to withhold the correct 
amount despite knowing or having reason to know the amount required to 
be withheld. A withholding agent that cannot reliably associate the 
payment with documentation and fails to act in accordance with the 
presumption rules set forth in paragraph (f) of this section may also 
be liable for tax, interest, and penalties. See paragraph (e)(4) in 
this section for the specific standards of knowledge applicable to a 
person's specific claims of chapter 4 status.
    (2) Notification by the IRS. A withholding agent that has received 
notification by the IRS that a claim of status as a U.S. person, a 
participating FFI, a deemed-compliant FFI, or other entity entitled to 
a reduced rate of withholding under section 1471 or 1472 is incorrect 
knows that such a claim is incorrect beginning on the date that is 30 
business days after the date the notice is received.
    (3) Participating FFIs and registered deemed-compliant FFIs--(i) In 
general. A withholding agent that has received a payee's claim of 
status as a participating FFI or registered deemed-compliant FFI and 
that is required under paragraph (d)(4) of this section to confirm that 
the branch of the FFI claiming status as a participating FFI or 
registered-deemed compliant FFI has a GIIN that appears on the 
published IRS FFI list, has reason to know that such payee is not such 
a financial institution if the payee's name (including a name 
reasonably similar to the name the withholding agent has on file for 
the payee) and GIIN do not appear on the most recently published IRS 
FFI list within 90 calendar days of the date that the claim is made. 
The withholding agent will also have reason to know that an FFI is 
either a limited branch or limited FFI (and, thus, not a participating 
FFI or registered-deemed compliant FFI) if the withholding agent has a 
permanent residence address or mailing address for the FFI that is in a 
country other than the country that in which the FFI claims to be a 
participating FFI or registered deemed-compliant FFI or the withholding 
agent makes a payment to the FFI at an address outside of the country 
in which the FFI claims to be a participating FFI or registered deemed-
compliant FFI. A payee whose registration with the IRS as a 
participating FFI or a registered deemed-compliant FFI is in process 
but has not yet received a GIIN may provide

[[Page 5936]]

a withholding agent with a Form W-8 claiming the chapter 4 status it 
applied for and writing ``applied for'' in the box for the GIIN. In 
such case, the FFI will have 90 calendar days from the date of its 
claim to provide the withholding agent with its GIIN and the 
withholding agent will have 90 calendar days from the date it receives 
the GIIN to verify the accuracy of the GIIN against the published IRS 
FFI list before it has reason to know that the payee is not a 
participating FFI or registered deemed-compliant FFI. If an FFI is 
removed from the published IRS FFI list, the withholding agent knows 
that such FFI is not a participating FFI or registered deemed-compliant 
FFI on the earlier of the date that the withholding agent discovers 
that the FFI has been removed from the list or the date that is one 
year from the date the FFI's GIIN was actually removed from the list.
    (ii) Special rules for reporting Model 1 FFIs. Prior to January 1, 
2015, a withholding agent that receives an FFI's claim of status as a 
reporting Model 1 FFI will not be required to confirm that the FFI has 
a GIIN that appears on the published IRS FFI list. A withholding agent 
will have reason to know that the FFI is not a reporting Model 1 FFI if 
the withholding agent does not have a permanent residence address for 
the FFI, or an address of the relevant branch of the FFI, located in 
the country in which the FFI claims to be a reporting Model 1 FFI or 
the withholding agent is directing a payment to a branch of the FFI 
that is not located in the country in which the FFI claims to be a 
reporting Model 1 FFI.
    (4) Reason to know. A withholding agent shall be considered to have 
reason to know that a claim of chapter 4 status is unreliable or 
incorrect if its knowledge of relevant facts or statements contained in 
the withholding certificates or other documentation is such that a 
reasonably prudent person in the position of the withholding agent 
would question the claims made. For accounts opened on or after January 
1, 2014, a withholding agent will also be considered to have reason to 
know that a claim of chapter 4 status is unreliable or incorrect if any 
information contained in its account opening files or other customer 
account files, including documentation collected for AML due diligence 
purposes, conflicts with the payee's claim of chapter 4 status. In 
addition to the general standards of knowledge set forth in this 
paragraph (e) regarding a person's claim of chapter 4 status, a 
withholding agent is also required to apply any specific standards of 
knowledge applicable to the chapter 4 status claimed as set forth in 
paragraph (d) of this section. A withholding agent that has relied upon 
documentation that is valid pursuant to paragraph (c) to treat a person 
as a foreign person, however, will have reason to know that a person's 
claim of status as a foreign person is inaccurate only if there are 
U.S. indicia associated with the person, as described in paragraphs 
(e)(4)(ii) through (vi) of this section, for which appropriate 
documentation sufficient to cure the U.S. indicia in the manner set 
forth in this paragraph (e) has not been obtained.
    (i) Information conflicting with person's claim of chapter 4 
status. A withholding certificate, written statement, or documentary 
evidence is unreliable or incorrect if there is information on the face 
of the documentation or in the withholding agent's account files that 
conflicts with the person's claim regarding its chapter 4 status. For 
example, a withholding agent will have reason to know that a person's 
claim that it is an excepted NFFE is unreliable or incorrect if the 
withholding agent has a financial statement or credit report that 
indicates that the person is engaged in business as a financial 
institution or if documentation submitted by the person indicates that 
the person is acting as an intermediary with respect to the payment 
and, thus, is not a beneficial owner for purposes of Sec.  1.1472-
1(c)(1). Further, a withholding agent that has classified the person as 
engaged in a particular type of business in its own records, such as 
through a standard industrial classification code, will have reason to 
know that that the chapter 4 status claimed by the person is unreliable 
or incorrect if the claim conflicts with the withholding agent's 
internal classification.
    (ii) Specific standards of knowledge applicable to withholding 
certificates--(A) In general. A withholding agent has reason to know 
that a withholding certificate provided by a person is unreliable or 
incorrect if the withholding certificate is incomplete with respect to 
any item on the certificate that is relevant to the claims made by the 
person, the withholding certificate contains any information that is 
inconsistent with the person's claim, the withholding agent has other 
account information that is inconsistent with the person's claim, or 
the withholding certificate lacks information necessary to establish 
entitlement to an exemption from withholding for chapter 4 purposes. A 
withholding agent that relies on an agent to review and maintain a 
withholding certificate is considered to know or have reason to know 
the facts within the knowledge of the agent. Paragraphs (e)(4)(ii)(B) 
through (D) of this section do not apply to a withholding certificate 
provided by a participating FFI, a registered deemed-compliant FFI, or 
a sponsored FFI, described in Sec.  1.1471-5(f)(2)(iii), if the 
certificate contains a GIIN for the FFI or sponsor that the withholding 
agent verifies on the current published IRS FFI list as provided in 
paragraph (e)(3) of this section.
    (B) Classification of U.S. status, U.S. address, or U.S. telephone 
number. A withholding agent has reason to know that a withholding 
certificate provided by a person is unreliable or incorrect if the 
withholding agent has classified the person as a U.S. person in its 
customer files, the withholding certificate has a current permanent 
residence address in the United States, the withholding certificate has 
a current mailing address in the United States, the withholding agent 
has a current residence or mailing address as part of its account 
information that is an address in the United States, or the person 
notifies the withholding agent of a new residence or mailing address in 
the United States (whether or not provided on a withholding 
certificate). A withholding agent also has reason to know that a 
withholding certificate provided by a person is unreliable or incorrect 
if the withholding agent has a current telephone number for the person 
in the United States and has no telephone number for the person outside 
of the United States. Notwithstanding the foregoing, a withholding 
agent may rely upon a withholding certificate to establish the person's 
status as a foreign person despite knowing that the person has any of 
the U.S. indicia described in this paragraph (e)(4)(ii)(B) if it may do 
so under the provisions of paragraphs (e)(4)(ii)(B)(1) and (2) of this 
section.
    (1) Presumption of individual's foreign status. A withholding agent 
may treat an individual that has U.S. indicia described in paragraph 
(e)(4)(ii)(B) of this section as a foreign person if the individual has 
provided a withholding certificate and--
    (i) The withholding agent has in its possession, or obtains, 
documentary evidence establishing foreign status (as described in 
paragraph (c)(5)(i) of this section) that does not contain a U.S. 
address and the individual provides the withholding agent with a 
reasonable written explanation supporting the claim of foreign status;
    (ii) For a payment made with respect to an offshore obligation, the 
withholding agent has in its possession, or obtains, documentary 
evidence establishing foreign status (as described

[[Page 5937]]

in paragraph (c)(5)(i) of this section), that does not contain a U.S. 
address; or
    (iii) For a payment made with respect to an offshore obligation, 
the withholding agent classifies the individual as a resident of the 
country in which the obligation is maintained, the withholding agent is 
required to report payments made to the individual annually on a tax 
information statement that is filed with the tax authority of the 
country in which the office is located as part of that country's 
resident reporting requirements, and that country has a tax information 
exchange agreement or income tax treaty in effect with the United 
States.
    (2) Presumption of entity's foreign status. A withholding agent may 
treat an entity that has U.S. indicia described in paragraph 
(e)(4)(ii)(B) of this section as a foreign person if the entity has 
provided a withholding certificate and--
    (i) The withholding agent has in its possession, or obtains, 
documentary evidence establishing foreign status (as described in 
paragraph (c)(5)(i) of this section) that substantiates that the entity 
is actually organized or created under the laws of a foreign country; 
or
    (ii) For a payment made with respect to an offshore obligation, the 
withholding agent classifies the entity as a resident of the country in 
which the obligation is maintained, the withholding agent is required 
to report payments made to the entity annually on a tax information 
statement that is filed with the tax authority of the country in which 
the office is located as part of that country's resident reporting 
requirements, and that country has a tax information exchange agreement 
or income tax treaty in effect with the United States.
    (C) U.S. place of birth--(1) Accounts opened on or after January 1, 
2014. For accounts opened on or after January 1, 2014, a withholding 
agent has reason to know that a withholding certificate indicating 
foreign status provided by an individual is unreliable or incorrect if 
the withholding agent has, either on accompanying documentation or as 
part of its account information, an unambiguous indication of a place 
of birth for the individual in the United States. A withholding agent 
may treat the individual as a foreign person, notwithstanding the U.S. 
place of birth, if the withholding agent has no knowledge that the 
individual has any other U.S. indicia described in paragraph (e)(4)(ii) 
of this section and the withholding agent obtains a copy of the 
individual's Certificate of Loss of Nationality of the United States. A 
withholding agent may also treat the individual as a foreign person, 
notwithstanding the U.S. place of birth and any other U.S. indicia 
described in paragraph (e)(4)(ii) of this section, if the withholding 
agent obtains a non-U.S. passport or other government-issued 
identification that is evidence of citizenship in a country other than 
the United States and either a copy of the individual's Certificate of 
Loss of Nationality of the United States, or a reasonable written 
explanation of the account holder's renunciation of U.S. citizenship or 
the reason the account holder did not obtain U.S. citizenship at birth.
    (2) Preexisting obligations. For a payment made with respect to a 
preexisting obligation, a withholding agent will not be required to 
conduct a search of its documentation to identify a U.S. place of birth 
associated with an individual. However, if the withholding agent, on or 
after January 1, 2014, reviews documentation that contains a U.S. birth 
place for an individual that is treated as a foreign person or is 
notified that the individual has a U.S. place of birth, then the 
account will be considered to have experienced a change in 
circumstances as of the date that the withholding agent reviewed the 
documentation and the withholding agent will be considered to have 
reason to know that the individual is a U.S. person. See paragraph 
(c)(6)(ii)(E) of this section for rules regarding the time period 
allowed to cure a change in circumstances.
    (D) Standing instructions with respect to offshore obligations. A 
withholding agent has reason to know that a withholding certificate 
provided by a person is unreliable or incorrect if it is provided with 
respect to an offshore obligation and the person has standing 
instructions directing the withholding agent to pay amounts to an 
address or an account maintained in the United States. The withholding 
agent may rely upon the withholding certificate to establish the 
person's status as a foreign person, however, if the person provides 
documentary evidence establishing foreign status (as described in 
paragraph (c)(5)(i) of this section).
    (iii) Specific standard of knowledge applicable to written 
statements. A withholding agent must apply the standards of knowledge 
applicable to withholding certificates, as set forth in paragraph 
(e)(4)(i) and (ii) of this section, when determining whether it can 
rely on a written statement.
    (iv) Specific standard of knowledge applicable to documentary 
evidence--(A) In general. A withholding agent may not treat documentary 
evidence provided by a person as valid if the documentary evidence does 
not reasonably establish the identity of the person presenting the 
documentary evidence. For example, documentary evidence is not valid if 
it is provided in person by an individual and the photograph or 
signature on the documentary evidence, if any, does not match the 
appearance or signature of the person presenting the document. A 
withholding agent may not rely on documentary evidence to reduce the 
rate of withholding that would otherwise apply under the presumption 
rules in paragraph (f) of this section if the documentary evidence 
contains information that is inconsistent with the person's claim as to 
its chapter 4 status, the withholding agent has other account 
information that is inconsistent with the person's claim, or the 
documentary evidence lacks information necessary to establish the 
person's chapter 4 status.
    (B) Classification of U.S. status, U.S. address, or U.S. telephone 
number. A withholding agent may not treat documentary evidence provided 
by a person as valid for purposes of establishing the person's foreign 
status if the withholding agent does not have a permanent residence 
address for the person. The previous sentence will not apply, however, 
to a withholding agent that is making a payment with respect to an 
offshore obligation. Documentary evidence is unreliable or incorrect to 
establish a person's status as a foreign person if the withholding 
agent has classified the person as a U.S. person in its customer files, 
the withholding agent has a current residence or mailing address 
(whether or not on the documentation) for the person in the United 
States, if the person notifies the withholding agent of a new address 
in the United States, or if the withholding agent has a current 
telephone number for the person in the United States and has no 
telephone number for the person outside of the United States.
    Notwithstanding the foregoing, a withholding agent may rely on 
documentary evidence to establish the person's status as a foreign 
person despite knowing that the person has any of the U.S. indicia 
described in this paragraph (e)(4)(iv)(B) if it may do so under the 
provisions of paragraphs (e)(4)(iv)(B)(1) and (2) of this section.
    (1) Presumption of individual's foreign status. A withholding agent 
may treat an individual that has U.S. indicia described in paragraph 
(e)(4)(iv)(B) of this section as a foreign person if the individual has 
provided documentary evidence and--
    (i) The withholding agent has in its possession, or obtains, 
additional documentary evidence establishing

[[Page 5938]]

foreign status (as described in paragraph (c)(5)(i) of this section), 
that does not contain a U.S. address, and the individual provides the 
withholding agent with a reasonable written explanation supporting the 
claim of foreign status;
    (ii) The withholding agent has in its possession, or obtains, a 
valid beneficial owner withholding certificate that contains a 
permanent residence address outside the United States and a mailing 
address, if any, outside the United States (or, if a mailing address is 
inside the United States, the direct account holder provides a 
reasonable written explanation supporting the individual's claim of 
foreign status); or
    (iii) For a payment made with respect to an offshore obligation, 
the withholding agent has in its possession, or obtains, a beneficial 
owner withholding certificate that contains a permanent residence 
address outside the United States.
    (2) Presumption of entity's foreign status. A withholding agent may 
treat an entity that has U.S. indicia described in paragraph 
(e)(4)(iv)(B) of this section as a foreign person if the entity has 
provided documentary evidence and--
    (i) The withholding agent has in its possession, or obtains, 
documentary evidence establishing foreign status (as described in 
paragraph (c)(5)(i) of this section) that substantiates that the entity 
is actually organized or created under the laws of a foreign country;
    (ii) The withholding agent obtains a valid withholding certificate 
that contains a permanent residence address outside the United States 
and a mailing address, if any, outside the United States; or
    (iii) For a payment made with respect to an offshore obligation, 
the withholding agent classifies the entity as a resident of the 
country in which the account is maintained, the withholding agent is 
required to report payments made to the entity annually on a tax 
information statement that is filed with the tax authority of the 
country in which the office is located as part of that country's 
resident reporting requirements, and that country has a tax information 
exchange agreement or income tax treaty in effect with the United 
States.
    (C) U.S. place of birth--(1) Accounts opened on or after January 1, 
2014. For accounts opened on or after January 1, 2014, a withholding 
agent has reason to know that documentary evidence provided to 
demonstrate an individual's status as a foreign person is unreliable or 
incorrect if the documentation contains a U.S. birth place for the 
individual or the withholding agent has, as part of its account 
information, a place of birth for the individual in the United States. 
A withholding agent may treat the individual as a foreign person, 
notwithstanding the U.S. birth place, if the withholding agent has no 
knowledge that the individual has any other U.S. indicia described in 
paragraph (e)(4)(iv) of this section and the withholding agent obtains 
a copy of the individual's Certificate of Loss of Nationality of the 
United States. A withholding agent may also treat the individual as a 
foreign person, notwithstanding the U.S. birth place and any other U.S. 
indicia described in paragraph (e)(4)(iv) of this section, if the 
withholding agent obtains a withholding certificate from the individual 
that establishes the payee's foreign status and either a copy of the 
individual's Certificate of Loss of Nationality of the United States or 
a reasonable written explanation of the individual's renunciation of 
U.S. citizenship or the reason the individual did not obtain U.S. 
citizenship at birth.
    (2) Preexisting obligations. For a payment made with respect to a 
preexisting obligation, a withholding agent will not be required to 
conduct a search of its documentation to identify a U.S. place of birth 
associated with an individual. However, if the withholding agent, on or 
after January 1, 2014, reviews documentation that contains a U.S. place 
of birth for the individual that is treated as a foreign person or is 
notified that the individual has a U.S. place of birth, then the 
account will be considered to have experienced a change in 
circumstances as of the date that the withholding agent reviewed the 
documentation and the withholding agent will be considered to have 
reason to know that the individual is a U.S. person. See paragraph 
(c)(6)(ii)(E) of this section for rules regarding the time period 
allowed to cure a change in circumstances.
    (D) Standing Instructions. With respect to an offshore obligation, 
documentary evidence is unreliable or incorrect as an indication of a 
person's status as a foreign person if the person has standing 
instructions directing the withholding agent to pay amounts to an 
address or an account maintained in the United States. The withholding 
agent may treat the person as a foreign person, however, if the person 
provides a withholding certificate and documentary evidence 
establishing foreign status (as described in paragraph (c)(5)(i) of 
this section), to the extent such documentary evidence was not already 
provided.
    (E) Standards of knowledge applicable to certain types of 
documentary evidence--(1) Financial statement. A withholding agent that 
obtains a financial statement for purposes of establishing that a 
foreign payee meets a certain asset threshold will have reason to know 
that the chapter 4 status claimed is inaccurate only if the total 
assets shown on the financial statement for the payee, and if relevant 
the payee's expanded affiliated group, are not within the permissible 
thresholds or the footnotes to the financial statement indicate that 
the payee is not a foreign entity or is not a type of FFI eligible for 
the chapter 4 status claimed. A withholding agent that obtains a 
financial statement for purposes of establishing that the payee is an 
active NFFE will be required to review the balance sheet and income 
statement to determine whether the payee meets the income and asset 
thresholds set forth in Sec.  1.1472-1(c)(1)(iv) and the footnotes of 
the financial statement for an indication that the payee is not a 
foreign entity or is a financial institution. A withholding agent that 
obtains a financial statement for purposes of establishing a chapter 4 
status for a payee that does not require the payee to meet an asset or 
income threshold will be required to review only the footnotes to the 
financial statement to determine whether the financial statement 
supports the claim of chapter 4 status. A withholding agent that is not 
relying upon a financial statement to establish the chapter 4 status of 
the payee (for example because it has other documentation that 
establishes the payee's chapter 4 status) is not required to 
independently evaluate the financial statement solely because the 
withholding agent also has collected the financial statement in the 
course of its account opening or other procedures.
    (2) Organizational documents. A withholding agent that obtains 
organizational documents for an entity solely for the purpose of 
supporting the chapter 4 status claimed will only be required to review 
the document sufficiently to establish that the entity is a foreign 
person and that the purposes for which the entity was formed and its 
basic activities appear to be of a type consistent with the chapter 4 
status claimed, unless otherwise specified in paragraph (d) of this 
section. A withholding agent that obtains organizational documents for 
the purpose of establishing that an entity has a particular chapter 4 
status will only be required to review the document to the extent 
needed to establish that the entity is a foreign person, that the 
requirements applicable to the particular chapter 4 status are

[[Page 5939]]

met, and that the document was executed, but will not be required to 
review the remainder of the document.
    (v) Specific standards of knowledge applicable when only 
documentary evidence is a code or classification described in paragraph 
(c)(5)(ii)(B) of this section. A withholding agent may not rely upon a 
standard industry code or classification described in paragraph 
(c)(5)(ii)(B) of this section to treat an entity as having a foreign 
chapter 4 status if there are U.S. indicia described in paragraph 
(e)(4)(v)(A) of this section associated with the entity, unless such 
U.S. indicia are cured in the manner set forth in paragraph 
(e)(4)(v)(B) of this section.
    (A) U.S. indicia for entities. The term U.S. indicia when used with 
respect to an entity includes, for purposes of this paragraph (e)(4)(v) 
any of the following--
    (1) Classification of an account holder as a U.S. resident in the 
withholding agent's customer files;
    (2) A current U.S. residence address or U.S. mailing address;
    (3) With respect to an offshore obligation, standing instructions 
to pay amounts to a U.S. address or an account maintained in the United 
States;
    (4) A current telephone number for the entity in the United States 
but no telephone number for the entity outside of the United States;
    (5) A current telephone number for the entity in the United States 
in addition to a telephone number for the entity outside of the United 
States;
    (6) A power of attorney or signatory authority granted to a person 
with a U.S. address; and
    (7) An ``in-care-of'' address or ``hold mail'' address that is the 
sole address provided for the entity.
    (B) Documentation required to cure U.S. indicia. A withholding 
agent may rely upon a code or classification described in paragraph 
(c)(5)(ii)(B) of this section to treat an entity as having a foreign 
chapter 4 status if there are U.S. indicia associated with the entity 
and the withholding agent obtains the relevant documentation described 
in this paragraph (e)(4)(v)(B).
    (1) If there are U.S. indicia described in paragraphs 
(e)(4)(v)(A)(1) through (4) of this section associated with the entity, 
the withholding agent may treat the entity as a foreign person only if 
the withholding agent obtains a withholding certificate for the entity 
and one form of documentary evidence, described in paragraph (c)(5) of 
this section that establishes the entity's status as a foreign person 
(such as a certificate of incorporation).
    (2) If there are U.S. indicia described in paragraphs 
(e)(4)(v)(A)(1) to (4) of this section associated with the entity and 
the withholding agent is making a payment with respect to an offshore 
obligation, the withholding agent may also treat the entity as a 
foreign person if the withholding agent obtains a withholding 
certificate for the entity and the withholding agent treats the entity 
as foreign for purposes of foreign tax reporting. A withholding agent 
will treat an entity as foreign for purposes of foreign tax reporting 
only if the withholding agent classifies the entity as a resident of 
the country in which the obligation is maintained, the withholding 
agent is required to report payments made to the entity annually on a 
tax information statement that is filed with the tax authority of the 
country in which the account is maintained as part of that country's 
resident reporting requirements, and that country has an tax 
information exchange agreement or income tax treaty in effect with the 
United States.
    (3) If there are indicia described in paragraphs (e)(4)(v)(A)(5) 
through (7) of this section associated with the entity, the withholding 
agent may treat the entity as a foreign person if the withholding agent 
obtains a withholding certificate or one form of documentary evidence, 
described in paragraph (c)(5) of this section, that establishes the 
entity's status as a foreign person (such as a certificate of 
incorporation).
    (vi) Specific standards of knowledge applicable to documentation 
received from intermediaries and flow-through entities--(A) In general. 
A withholding agent that receives documentation from a payee through an 
intermediary or flow-through entity is required to review all 
documentation obtained with respect to the payee and all intermediaries 
and/or flow-through entities in the chain of payment, applying the 
standards of knowledge set forth in paragraph (e) of this section. This 
standard requires, but is not limited to, a withholding agent's 
compliance with the rules of paragraphs (e)(4)(vi)(A)(1) and (2) of 
this section.
    (1) The withholding agent is required to review the withholding 
statement or owner reporting statement provided and may not rely on 
information in the statement to the extent the information does not 
support the claims made regarding the chapter 4 status of the person. 
For this purpose, a withholding agent may not treat a person as a 
foreign person if an address in the United States is provided for such 
person unless the withholding statement is accompanied by a valid 
withholding certificate and documentary evidence establishing foreign 
status (as described in paragraph (c)(5)(i) of this section).
    (2) The withholding agent must review each withholding certificate 
and written statement in accordance with paragraph (e)(4)(i) through 
(iii) of this section and all documentary evidence in accordance with 
paragraph (e)(4)(i) and (iv) of this section, and must verify that the 
information contained on the withholding certificate, written 
statement, and documentary evidence is consistent with the information 
on the withholding statement or owner reporting statement. If there is 
a discrepancy between the withholding certificate, written statement, 
or documentary evidence and the withholding statement or owner 
reporting statement, the withholding agent may choose to rely on the 
withholding certificate, written statement, or documentary evidence 
provided such documentation is valid and the intermediary or flow-
through entity does not indicate that the documentation is unreliable 
or inaccurate, or may apply the presumption rules set forth in 
paragraph (f) of this section. If the withholding agent chooses to rely 
upon the withholding certificate, written statement, or documentary 
evidence, the withholding agent is required to instruct the 
intermediary or flow-through entity to correct the withholding 
statement and confirm that the intermediary or flow-through entity does 
not know or have reason to know that the documentation is unreliable or 
inaccurate.
    (B) Limits on reason to know with respect to documentation received 
from participating FFIs and registered deemed-compliant FFIs that are 
intermediaries or flow-through entities. A withholding agent that 
receives documentation from a participating FFI or registered deemed-
compliant FFI that is not the payee must apply the requirements of 
paragraph (e)(4)(vi)(A) of this section, except that the withholding 
agent may rely upon the chapter 4 status provided by the participating 
FFI or registered deemed-compliant FFI in the withholding statement 
unless the withholding agent has information that conflicts with the 
chapter 4 status provided. If underlying documentation is provided for 
the payee and information in the documentation or in the withholding 
agent's records conflicts with the chapter 4 status claimed, the 
withholding agent will have reason to know that the chapter 4 status 
claimed is inaccurate. A withholding agent is not, however, required to 
verify information contained

[[Page 5940]]

in documentation provided by an intermediary or flow-through entity 
that is a participating FFI or registered deemed-compliant FFI that is 
not facially incorrect and is not required to obtain supporting 
documentation for the payee in addition to a withholding certificate 
unless the withholding agent obtains such documentation for purposes of 
chapter 3 or 61 or unless the withholding agent knows that the review 
conducted by the participating FFI or registered deemed-compliant FFI 
for purposes of chapter 4 was not adequate. For example, a withholding 
agent that receives a withholding statement from a participating FFI 
that is an intermediary stating that the payee is a registered deemed-
compliant FFI is only required to determine that any withholding 
certificate provided for the payee contains a GIIN and that the GIIN 
does not appear to be facially invalid (for example, because it does 
not contain the correct amount of digits), but is not subject to the 
requirements set forth in paragraph (e)(3) of this section. Similarly, 
a withholding agent that receives from a participating FFI that is a 
partnership a withholding statement claiming that the payee is an 
active NFFE will have reason to know that the claim is inaccurate if it 
receives a withholding statement that contains a U.S. address for the 
payee unless the partnership also provides a copy of documentation 
sufficient to cure the U.S. indicia in the manner set forth in 
paragraph (e) of this section or the withholding statement indicates 
that appropriate documentation sufficient to cure the U.S. indicia in 
the manner set forth in paragraph (e) of this section has been obtained 
and provides details of such documentation, such as the type of 
documentation and an identification number of the person contained on 
the document.
    (vii) Limits on reason to know--(A) Scope of review for preexisting 
obligations of entities. For purposes of determining whether a 
withholding agent that makes a payment with respect to a preexisting 
obligation to an entity has reason to know that the chapter 4 status 
applied to the entity is unreliable or incorrect, the withholding agent 
is only required to review information contradicting the chapter 4 
status claimed if such information is contained in the current customer 
master file, the most recent withholding certificate, written 
statement, and documentary evidence for the person, the most recent 
account opening contract, the most recent documentation obtained by the 
withholding agent for purposes of AML due diligence or for other 
regulatory purposes, any power of attorney or signature authority forms 
currently in effect, and any standing instructions to pay amounts that 
is currently in effect.
    (B) Reason to know there is a U.S. telephone number associated with 
a preexisting obligation. For payments made with respect to a 
preexisting obligation, a withholding agent, in lieu of searching the 
account files addressed in paragraph (e)(4)(vii)(A) of this section to 
determine whether the payee (or other person receiving the payment) has 
a current telephone number in the United States, may rely upon a search 
of its electronically searchable information associated with such 
person. However, the withholding agent may only rely upon the 
electronic search described in the previous sentence if the electronic 
search produces at least one current phone number for the person. If 
the electronic search does not produce a telephone number for the 
person, the withholding agent will be required, by January 1, 2017, to 
search the files described in paragraph (e)(4)(vii)(A) of this section 
to locate a current telephone number for the payee.
    (C) Reason to know there are U.S. indicia associated with 
preexisting offshore obligations. For payments made outside of the 
United States with respect to an offshore obligation that is also a 
preexisting obligation and with respect to a withholding agent that had 
not already documented the payee for purposes of chapter 3 or 61, the 
withholding agent, in lieu of searching the account files addressed in 
paragraph (e)(4)(vii)(A) of this section to determine whether there are 
U.S. indicia associated with the payee (or other person who receives 
the payment), may instead rely upon a search of its electronically 
searchable information associated with such person. A withholding agent 
that relies upon an electronic search pursuant to this paragraph 
(e)(4)(vii)(C) must also review for U.S. indicia any documentation upon 
which the withholding agent relies to determine the chapter 4 status of 
the person and any documentation that the withholding agent had been 
relying upon to determine the residency or citizenship of the person.
    (D) Limits on reason to know for multiple obligations belonging to 
a single person. A withholding agent that maintains multiple 
obligations for a single person will have reason to know that a chapter 
4 status assigned to the person is inaccurate based on information 
contained in the customer files for another obligation held by the 
person only to the extent that--
    (1) The withholding agent's computerized systems link the 
obligations by reference to a data element such as client number, EIN, 
or foreign tax identifying number and consolidates the customer 
information and payment information for the obligations; or
    (2) The withholding agent has treated the obligations as 
consolidated obligations for purposes of sharing documentation pursuant 
to paragraph (c)(8) of this section or for purposes of treating one or 
more accounts as preexisting obligations.
    (viii) Reasonable explanation supporting claim of foreign status. A 
reasonable explanation supporting a claim of foreign status for an 
individual means a written statement prepared by the individual (or the 
individual's completion of a checklist provided by the withholding 
agent), stating that the individual meets one of the requirements of 
paragraphs (e)(4)(viii)(A) through (D).
    (A) The individual certifies that he or she--
    (1) Is a student at a U.S. educational institution and holds the 
appropriate visa;
    (2) Is a teacher, trainee, or intern at a U.S. educational 
institution or a participant in an educational or cultural exchange 
visitor program, and holds the appropriate visa;
    (3) Is a foreign individual assigned to a diplomatic post or a 
position in a consulate, embassy, or international organization in the 
United States; or
    (4) Is a spouse or unmarried child under the age of 21 years of one 
of the persons described in paragraphs (e)(4)(viii)(A) through (C) of 
this section;
    (B) The individual provides information demonstrating that he or 
she has not met the substantial presence test set forth in Sec.  
301.7701(b)-1(c) of this chapter (for example, a written statement 
indicating the number of days present in the United States during the 
3-year period that includes the current year);
    (C) The individual certifies that he or she meets the closer 
connection exception described in Sec.  301.7701(b)-2, states the 
country to which the individual has a closer connection, and 
demonstrates how that closer connection has been established; or
    (D) With respect a payment entitled to a reduced rate of tax under 
a U.S. income tax treaty, the individual certifies that he or she is 
treated as a resident of a country other than the United States and is 
not treated as a U.S. resident or U.S. citizen for purposes of that 
income tax treaty.

[[Page 5941]]

    (5) Conduit financing arrangements. The rules set forth in Sec.  
1.1441-7(f), regarding a withholding agent's liability for failing to 
withhold in the case in which the financing arrangement is a conduit 
financing arrangement, apply for purposes determining a withholding 
agent's liability for any withholding required under chapter 4.
    (6) Additional guidance. The IRS may prescribe other circumstances 
for which a withholding certificate or documentary evidence to 
establish a payee's chapter 4 status is unreliable or incorrect in 
addition to the circumstances described in this paragraph (e).
    (f) Presumptions regarding chapter 4 status of the person receiving 
the payment in the absence of documentation--(1) In general. A 
withholding agent that cannot, prior to the payment, reliably associate 
(within the meaning of paragraph (c) of this section) a payment with 
valid documentation may rely on the presumptions of this paragraph (f) 
to determine the status of the payee (or other person receiving the 
payment) as a U.S. or foreign person and such person's other relevant 
characteristics (for example, as a participating FFI or a 
nonparticipating FFI). See paragraph (f)(9) of this section for 
consequences to a withholding agent that fails to withhold in 
accordance with the presumptions set forth in this paragraph (f) or 
that has actual knowledge or reason to know facts that are contrary to 
the presumptions set forth in this paragraph (f).
    (2) Presumptions of classification as an individual or entity--(i) 
In general. A withholding agent that cannot reliably associate a 
payment with a valid withholding certificate, or that has received 
valid documentary evidence, as described in paragraph (c)(5) of this 
section, but cannot determine a person's status as an individual or an 
entity from the documentary evidence, must presume that the person is 
an individual if the person appears to be an individual (for example, 
based on the person's name or information in the customer file). If the 
person does not appear to be an individual, then the person shall be 
presumed to be an entity. In the absence of reliable documentation, a 
withholding agent must treat a person that is presumed to be an entity 
as a trust or estate if the person appears to be a trust or estate (for 
example, based on the person's name or information in the customer 
file). In addition, a withholding agent must treat a person that is 
presumed to be a trust, or a person that is known to be a trust but for 
which the withholding agent cannot determine the type of trust, as a 
grantor trust if the withholding agent knows that the settlor of the 
trust is a U.S. person, and otherwise as a simple trust. In the absence 
of reliable indications that the entity is a trust or estate, the 
withholding agent must presume the person is a corporation if it can be 
treated as such under Sec.  1.6049-4(c)(1)(ii)(A)(1). If the 
withholding agent cannot treat the person as a corporation under Sec.  
1.6049-4(c)(1)(ii)(A)(1), then the person must be presumed to be a 
partnership. See paragraph (a) of this section to determine, based upon 
the person's presumed entity type, whether the person is treated as a 
payee.
    (ii) Documentary evidence furnished for offshore obligation. If the 
withholding agent receives valid documentary evidence, as described in 
paragraph (d) of this section, with respect to an offshore obligation 
from an entity but the documentary evidence does not establish the 
entity's classification as a corporation, trust, estate, or 
partnership, the withholding agent may presume that the entity is a 
corporation unless the withholding agent knows, or has reason to know, 
that the entity is not classified as a corporation for U.S. tax 
purposes. However, a withholding agent may not treat a person that is 
known or presumed to be a foreign corporation as a beneficial owner if 
the withholding agent knows, or has reason to know, that the person is 
not the beneficial owner with respect to the payment. For this purpose, 
a withholding agent will have reason to know that the person is not a 
beneficial owner if the documentary evidence indicates that the person 
is a bank, broker, intermediary, custodian, or other agent. A 
withholding agent may, however, treat such a person as a beneficial 
owner if the foreign person provides written notification, regardless 
of whether such notification is signed, that indicates the person is 
the beneficial owner of the payment.
    (3) Presumptions of U.S. or foreign status. A payment that the 
withholding agent cannot reliably associate with a valid withholding 
certificate or documentary evidence is presumed to be made to a U.S. 
person, except as otherwise provided in this paragraph (f)(3). A 
payment that is reliably associated with documentation that indicates 
the payment is made to a U.S. person but does not indicate whether the 
person is a specified U.S. person, will be presumed to be made to a 
specified U.S. person unless the withholding agent can apply the 
presumption rules of Sec.  1.6049-4(c)(1)(ii)(B), (C), (D), (E), (I), 
(J), (K), (L), or (N), to presume that the person is other than a 
specified U.S. person or the person's name reasonably indicates that 
the person is a bank (for example because it contains the word ``Bank'' 
or a foreign equivalent).
    (i) Payments to entities with indicia of foreign status. If a 
withholding agent cannot reliably associate a payment with valid 
documentation sufficient to determine the person's status as a U.S. 
person or foreign person and the person is presumed to be an entity, 
the person is presumed to be a foreign person and not a U.S. person--
    (A) If the withholding agent has actual knowledge of the person's 
EIN and that number begins with the two digits ``98'';
    (B) If the withholding agent's communications with the person are 
mailed to an address in a foreign country;
    (C) If the withholding agent has a telephone number for the person 
outside of the United States; or
    (D) If the name of the person indicates that the entity is of a 
type that is on the per se list of foreign corporations contained in 
Sec.  301.7701-2(b)(8)(i) of this chapter (other than a name which 
contains the designation ``corporation'' or ``company'').
    (ii) Payments to certain exempt recipients. If the payment is made 
to an entity that is treated as an exempt recipient under the 
provisions of Sec.  1.6049-4(c)(1)(ii)(A)(1), (F), (G), (H), (I), (M), 
(O), (P), or (Q) in the case of interest, or under similar provisions 
in chapter 61 applicable to the type of payment involved, the entity 
shall be presumed to be a foreign person.
    (iii) Payments with respect to offshore obligations. A payment to 
an individual or an entity is presumed to be made to a foreign person 
if the payment is made outside of the United States with respect to an 
offshore obligation and the withholding agent does not know that the 
person is a U.S. person.
    (4) Presumption of chapter 4 status for a foreign entity. A 
withholding agent that makes a payment to a foreign entity that it 
cannot reliably associate with a valid withholding certificate or 
documentary evidence sufficient to determine the chapter 4 status of 
that entity under paragraph (d) of this section (for example, as a 
participating FFI, nonparticipating FFI, or NFFE) must presume that the 
entity is a nonparticipating FFI.
    (5) Presumption of status as an intermediary. If a withholding 
agent cannot reliably associate a payment with documentation to treat 
the payment as made to an intermediary, then the withholding agent must 
treat the payment as made to an intermediary if the withholding agent 
has

[[Page 5942]]

documentary evidence or other documentation that indicates, or the 
facts and circumstances of the transaction (including the name of the 
person who receives the payment or the presence of sub-account numbers 
not corresponding to accounts maintained by the withholding agent for 
such person) indicate that the person who receives the payment is a 
bank, broker, custodian, intermediary, or other agent, and the 
withholding agent has no knowledge that the person is receiving the 
payment for its own account. Any portion of a payment that the 
withholding agent must treat as made to a foreign intermediary (whether 
a QI or an NQI) but that the withholding agent cannot treat as reliably 
associated with valid documentation under the rules of paragraph (c) of 
this section, is presumed to be made to a nonparticipating FFI account 
holder of the intermediary. A person that the withholding agent is not 
required to treat as a foreign intermediary under this paragraph (f)(5) 
is presumed to be a person other than an intermediary.
    (6) Presumption of effectively connected income for payments to 
certain U.S. branches. A withholding agent that makes a payment to a 
U.S. branch described in this paragraph (f)(6) may presume, in the 
absence of documentation indicating otherwise, that the U.S. branch is 
the payee and the payment is effectively connected with the conduct of 
a trade or business in the United States if the withholding agent has 
both an EIN for the branch and a valid GIIN for the home office 
establishing that the U.S. branch is a branch of a participating FFI or 
registered deemed-compliant FFI. A U.S. branch is described in this 
paragraph (f)(6) if it is a U.S. branch of a foreign bank subject to 
regulatory supervision by the Federal Reserve Board or a U.S. branch of 
a foreign insurance company required to file an annual statement on a 
form approved by the National Association of Insurance Commissioners 
with the Insurance Department of a State, a Territory, or the District 
of Columbia. A payment is treated as made to a U.S. branch of a foreign 
bank or foreign insurance company if the payment is credited to an 
account maintained in the United States in the name of a U.S. branch of 
the foreign person, or the payment is made to an address in the United 
States where the U.S. branch is located and the name of the U.S. branch 
appears on documents (in written or electronic form) associated with 
the payment (for example, the check mailed or letter addressed to the 
branch).
    (7) Joint payees--(i) In general. If a withholding agent makes a 
payment to joint payees and cannot reliably associate the payment with 
valid documentation from each payee but all of the joint payees appear 
to be individuals, then the payment is presumed made to an unidentified 
U.S. person. If any joint payee does not appear, by its name and other 
information contained in the account file, to be an individual, then 
the entire payment will be treated as made to a nonparticipating FFI. 
However, if one of the joint payees provides a Form W-9 furnished in 
accordance with the procedures described in Sec. Sec.  31.3406(d)-1 
through 31.3406(d)-5 of this chapter, the payment shall be treated as 
made to that payee.
    (ii) Exception for offshore obligations. If a withholding agent 
makes a payment outside the United States with respect to an offshore 
obligation held by joint payees and cannot reliably associate a payment 
with valid documentation from each payee but all of the joint payees 
appear to be individuals, then the payment is presumed made to an 
unknown foreign individual.
    (8) Rebuttal of presumptions. A payee may rebut the presumptions 
described in this paragraph (f) by providing reliable documentation to 
the withholding agent or, if applicable, to the IRS.
    (9) Effect of reliance on presumptions and of actual knowledge or 
reason to know otherwise--(i) In general. Except as otherwise provided 
in this paragraph (f)(9), a withholding agent that withholds on a 
payment under section 1471 or 1472 in accordance with the presumptions 
set forth in this paragraph (f) shall not be liable for withholding 
under this section even if it is later established that the payee has a 
chapter 4 status other than the status presumed. A withholding agent 
that fails to report and withhold in accordance with the presumptions 
described in this paragraph (f) with respect to a payment that it 
cannot reliably associate with valid documentation shall be liable for 
tax, interest, and penalties. See Sec.  1.1474-1(a) for the extent of a 
withholding agent's liability for failing to withhold in accordance 
with the presumptions described in this paragraph (f).
    (ii) Actual knowledge or reason to know that amount of withholding 
is greater than is required under the presumptions or that reporting of 
the payment is required. Notwithstanding the provisions of paragraph 
(f)(9)(i) of this section, a withholding agent that knows or has reason 
to know that the status or characteristics of the person are other than 
what is presumed under this paragraph (f) may not rely on the 
presumptions described in this paragraph (f) to the extent that, if it 
determined the status of the person based on such knowledge or reason 
to know, it would be required to withhold (under this section or 
another withholding provision of the Code) an amount greater than would 
be the case if it relied on the presumptions described in this 
paragraph (f). In such a case, the withholding agent must rely on its 
knowledge or reason to know rather than on the presumptions set forth 
in this paragraph (f). Failure to do so shall result in liability for 
tax, interest, and penalties to the extent provided under Sec.  1.1474-
1(a).
    (g) Effective/applicability date. This section generally applies on 
January 28, 2013. For other dates of applicability, see Sec. Sec.  
1.1471-3(d)(1); 1.1471-3(d)(4)(i), (ii), and (iv); 1.1471-3(d)(6)(v); 
1.1471-3(d)(11)(viii)(A); 1.1471-3(d)(12)(iii)(B); 1.1471-3(e)(3)(ii); 
and 1.1471-3(e)(4)(vii)(B).

0
Par. 8. Section 1.1471-4 is added to read as follows:


Sec.  1.1471-4  FFI agreement.

    (a) In general. An FFI agreement will be in effect in accordance 
with section 1471(b) if an FFI registers with the IRS pursuant to 
procedures prescribed by the IRS and agrees to comply with the terms of 
an FFI agreement. The FFI agreement will incorporate the requirements 
set forth in this section, any modifications set forth in an applicable 
Model 2 IGA, and any provisions applicable to a reporting Model 1 FFI.
    (1) Withholding. A participating FFI is required to deduct and 
withhold tax with respect to payments made to recalcitrant account 
holders and nonparticipating FFIs to the extent required under 
paragraph (b) of this section. A participating FFI that is prohibited 
by foreign law from withholding as required under paragraph (b) of this 
section with respect to an account must close such account within a 
reasonable period of time or must otherwise block or transfer such 
account as described in paragraph (i) of this section.
    (2) Identification and documentation of account holders. A 
participating FFI is required to obtain such information regarding each 
holder of each account maintained by the participating FFI to determine 
whether each account is a U.S. account or an account held by a 
recalcitrant account holder or nonparticipating FFI in accordance with 
the due diligence procedures for identifying and documenting account

[[Page 5943]]

holders described in paragraph (c) of this section.
    (3) Reporting. A participating FFI is required to report the 
information described in paragraph (d) of this section annually with 
respect to U.S. accounts under section 1471(c) and accounts held by 
recalcitrant account holders. A participating FFI must also comply with 
the filing requirements described in Sec.  1.1474-1(c) and (d) to 
report payments that are chapter 4 reportable amounts paid to 
recalcitrant account holders and nonparticipating FFIs (including the 
transitional reporting of foreign reportable amounts paid to 
nonparticipating FFIs for calendar years 2015 and 2016 described in 
Sec.  1.1474-1(d)(4)(iii)(C)). A participating FFI that is unable to 
obtain a waiver, if required by foreign law, to report an account as 
required under paragraph (d) of this section must close or transfer 
such account within a reasonable period of time as described in 
paragraph (i) of this section.
    (4) Expanded affiliated group. Except as otherwise provided in 
Model 1 IGA or Model 2 IGA, in order for any FFI that is a member of an 
expanded affiliated group to be a participating FFI, each FFI that is a 
member of the expanded affiliated group must be a participating FFI or 
registered deemed-compliant FFI as described in paragraph (e) of this 
section. For a limited period described in paragraph (e)(2) or (e)(3) 
of this section, however, a branch of an FFI or an FFI that is a member 
of an expanded affiliated group and is unable under foreign law to 
satisfy the requirements of this section may instead obtain status as a 
limited branch of a participating FFI or limited FFI if the branch or 
FFI meets the requirements set forth in paragraph (e)(2) or (e)(3) of 
this section (as applicable).
    (5) Verification. A participating FFI is required to adopt a 
compliance program as described in paragraph (f) of this section under 
the authority of the responsible officer, who will be required to 
certify periodically to the IRS on behalf of the FFI regarding the 
participating FFI's compliance with the requirements of the FFI 
agreement. If the IRS identifies concerns about the participating FFI's 
compliance, the IRS may request additional information to verify 
compliance with the requirements of the FFI agreement as described in 
paragraph (f)(4) of this section.
    (6) Event of default. A participating FFI is required to cure an 
event of default with respect to the FFI agreement as defined in 
paragraph (g) of this section. Upon the occurrence of an event of 
default, the IRS will deliver to a participating FFI a notice of 
default and will allow the FFI an opportunity to cure the event of 
default as described in paragraph (g) of this section.
    (7) Refunds. A participating FFI may file a collective refund on 
behalf of certain account holders and payees for amounts withheld by 
the participating FFI or its withholding agent under chapter 4 in 
excess of the account holder or payee's U.S. tax liability to the 
extent permitted in paragraph (h) of this section. A participating FFI 
may also make an adjustment for overwithholding using either the 
reimbursement procedure described in Sec.  1.1474-2(a)(3) or the set-
off procedure described in Sec.  1.1474-2(a)(4).
    (b) Withholding requirements--(1) In general. Except as otherwise 
provided in a Model 2 IGA, a participating FFI is required to deduct 
and withhold a tax equal to 30 percent of any withholdable payment made 
by such participating FFI to an account held by a recalcitrant account 
holder or to a nonparticipating FFI after December 31, 2013, to the 
extent required under paragraph (b)(3) of this section. See paragraph 
(b)(2) of this section for rules for a participating FFI to identify 
the payee of a payment in order to determine whether withholding is 
required under this paragraph (b). See paragraph (b)(4) of this section 
for the extent of a participating FFI's requirement to deduct and 
withhold tax on a foreign passthru payment made by such participating 
FFI to an account held by a recalcitrant account holder or to a 
nonparticipating FFI. See paragraph (b)(5) of this section for the 
rules for withholding on payments to limited branches and limited FFIs. 
See paragraph (b)(6) for the special allowance to set aside in escrow 
amounts withheld with respect to dormant accounts. See paragraph (b)(7) 
of this section for the withholding requirements of certain U.S. 
branches of participating FFIs. See Sec.  1.1471-2 for the exceptions 
to withholding and the exclusion from the definition of withholdable 
payment and foreign passthru payment that applies to any payment made 
under a grandfathered obligation or the gross proceeds from the 
disposition of such an obligation. See Sec.  1.1474-1(d)(4)(iii) for 
the requirement of participating FFIs to report payments that are 
chapter 4 reportable amounts. See Sec.  1.1474-6 for the coordination 
of withholding on payments under this paragraph (b) with the other 
withholding provisions under the Code.
    (2) Withholding determination. Except as otherwise provided under 
Sec.  1.1471-2 and paragraph (c) of this section with respect to 
certain preexisting accounts, a participating FFI is required to 
determine whether withholding applies at the time a payment is made by 
reliably associating the payment with valid documentation described in 
paragraph (c) of this section for the payee of the payment. For a 
payment made to an account, if the account is held by one or more 
individuals, the payee is each individual account holder. For a payment 
made to an account held by an entity, except as otherwise provided in 
Sec.  1.1471-3(a)(3), the payee is the account holder of the payment. 
If the participating FFI makes a withholdable payment to a payee that 
is an entity and the payment is made with respect to an obligation that 
is not an account, except as otherwise provided in Sec.  1.1471-
3(a)(3), the payee is the person to whom the payment is made. See Sec.  
1.1473-1(a) to determine when a payment is made in the case of a 
withholdable payment. If a participating FFI cannot reliably associate 
a payment (or any portion of a payment) with valid documentation, the 
rules described in paragraph (c) of this section shall apply to 
determine the chapter 4 status of the account holder (and payee if 
other than the account holder). Notwithstanding the foregoing, a 
participating FFI may establish after the date of payment that 
withholding was not required to the extent permitted under Sec.  
1.1471-3(c)(7) or may apply the procedures provided in Sec.  1.1474-2 
when overwithholding occurs.
    (3) Satisfaction of withholding requirements. A participating FFI 
that complies with the withholding obligations of this paragraph (b) 
with respect to accounts held by recalcitrant account holders and 
payees that are nonparticipating FFIs shall be deemed to satisfy its 
withholding obligations under sections 1471(a) and 1472 with respect to 
such account holders and payees. A participating FFI that is an NQI, 
NWP, NWT, or that is a QI that elects under section 1471(b)(3) not to 
assume withholding responsibility for the payment and that provides its 
withholding agent with the information necessary to allocate all or a 
portion of the payment to each payee as part of a withholding 
certificate described in Sec.  1.1471-3(c)(3)(iii) will generally not 
be required to withhold under paragraph (b)(1) of this section. See 
Sec.  1.1471-2(a)(2)(ii), however, for the circumstances under which a 
participating FFI that is an NQI, NWP, or NWT has a residual 
withholding responsibility. See also Sec.  1.1471-3(c)(9)(iii)(B) for 
the circumstances under which a participating FFI that is

[[Page 5944]]

a broker has a residual withholding responsibility as an intermediary 
of the payment and may also be liable for any underwithholding that 
occurs. See Sec. Sec.  1.1471-2(a) and 1.1472-1(a)(2)(i) and the QI, 
WP, or WT agreement for the withholding requirements of a participating 
FFI that is a QI, WP, or WT for purposes of chapter 4.
    (4) Foreign passthru payments. A participating FFI is not required 
to deduct and withhold tax on a foreign passthru payment made by such 
participating FFI to an account held by a recalcitrant account holder 
or to a nonparticipating FFI before the later of January 1, 2017, or 
the date of publication in the Federal Register of final regulations 
defining the term foreign passthru payment.
    (5) Withholding on limited FFIs and limited branches--(i) Limited 
FFIs. A participating FFI is required to withhold on a withholdable 
payment made to a limited FFI identifying itself as a nonparticipating 
FFI. A participating FFI that is a member of an expanded affiliated 
group that includes one or more limited FFIs will also be required to 
treat any such limited FFI as a nonparticipating FFI with respect to 
withholdable payments made to such limited FFI. A participating FFI 
will be considered to have made a withholdable payment to a limited FFI 
if such participating FFI receives a withholdable payment with respect 
to a security or instrument held on behalf of a limited FFI (or an 
account maintained by the limited FFI). A participating FFI will also 
be considered to have made a withholdable payment to a limited FFI when 
the limited FFI receives a payment with respect to a transaction 
between the limited FFI and such participating FFI that is in the same 
expanded affiliated group and such transaction hedges or otherwise 
provides total return exposure to another transaction between such 
participating FFI and a third party that gives rise to a withholdable 
payment.
    (ii) Limited branches. A participating FFI is required to withhold 
on a withholdable payment made to a limited branch identifying itself 
as a nonparticipating FFI. A branch of the participating FFI other than 
the limited branch is also required to withhold on a withholdable 
payment when it receives the payment on behalf of a limited branch of 
the participating FFI. A branch of the participating FFI other than a 
limited branch will be considered to have received a withholdable 
payment on behalf of a limited branch when such other branch receives a 
withholdable payment with respect to a security or instrument it holds 
on behalf of a limited branch (or an account maintained by the limited 
branch). A branch of a participating FFI other than a limited branch 
will be considered to hold a security or instrument on behalf of a 
limited branch when it executes a transaction with a limited branch 
that hedges or otherwise provides total return exposure to another 
transaction between such other branch and a third party that gives rise 
to a withholdable payment.
    (6) Special rule for dormant accounts. A participating FFI that 
makes a payment to a recalcitrant account holder of a dormant account 
and that withholds on such payment as required under paragraph (b)(1) 
of this section may, in lieu of depositing the tax withheld under Sec.  
1.6302-2 and described in Sec.  1.1474-1(b), set aside the amount 
withheld in escrow until the date that the account ceases to be a 
dormant account. In such case, the tax withheld becomes due 90 days 
following the date that the account ceases to be a dormant account if 
the account holder does not provide the documentation required under 
paragraph (c) of this section or becomes refundable to the account 
holder if the account holder provides the documentation required under 
paragraph (c) of this section establishing that withholding does not 
apply. If a dormant account escheats to a foreign government under the 
relevant laws in the jurisdiction in which the participating FFI (or 
branch thereof) operates, the participating FFI is not required to 
deposit with the IRS the amount held in escrow with respect to the 
account. See paragraph (d)(6)(ii) of this section for the definition of 
dormant account.
    (7) Withholding requirements for U.S. branches of participating 
FFIs that are treated as U.S. persons. A U.S. branch of a participating 
FFI that is treated as a U.S. person and that satisfies its backup 
withholding obligations under section 3406(a) with respect to accounts 
held at the U.S. branch by account holders that are treated as U.S. 
non-exempt recipients under chapter 61 will be treated as satisfying 
its withholding obligation with respect to such accounts under section 
1471(b)(1) and this paragraph (b). See paragraph (d)(2)(iii)(B) of this 
section for the special reporting requirements applicable to U.S. 
branches of participating FFIs that are treated as U.S. persons. See 
paragraphs (c)(2) and (d)(4) of this section for the reporting 
requirements of U.S. branches of participating FFIs with respect to 
payments that are chapter 4 reportable amounts.
    (c) Due diligence for the identification and documentation of 
account holders and payees--(1) Scope of paragraph. Except to the 
extent that a participating FFI relies on the due diligence procedures 
set forth in an applicable Model 2 IGA, a participating FFI must follow 
this paragraph (c) to identify and document the chapter 4 status of 
each holder of an account maintained by the participating FFI to 
determine if the account is a U.S. account, non-U.S. account, or an 
account held by a recalcitrant account holder or nonparticipating FFI. 
Paragraph (c)(2) of this section provides the general rules for 
identification and documentation of account holders and payees, and 
paragraph (c)(2)(v) provides special documentation requirements for 
certain U.S. branches of participating FFIs. Paragraph (c)(3) of this 
section provides the rules for documenting entity accounts and payees. 
Paragraph (c)(4) of this section provides the general rules for 
documenting individual accounts other than preexisting accounts. 
Paragraph (c)(5) of this section provides the identification and 
documentation procedure for preexisting individual accounts. Paragraph 
(c)(6) of this section provides examples illustrating the application 
of the documentation exceptions for entity accounts and individual 
accounts. Paragraph (c)(7) of this section outlines the certification 
requirement relating to the due diligence procedures of this paragraph 
(c) with respect to preexisting accounts within the specified periods 
of time.
    (2) General rules for the identification and documentation of 
account holders and payees--(i) Overview. Except as otherwise provided 
in paragraphs (c)(3)(iii) and (c)(5)(iii) of this section 
(documentation exceptions for certain preexisting accounts), a 
participating FFI is required to identify among accounts maintained by 
the participating FFI each account that is a U.S. account or an account 
held by a recalcitrant account holder or nonparticipating FFI, and to 
report information about such accounts in the manner provided in 
paragraph (d) of this section and Sec.  1.1474-1(d)(4)(iii). See Sec.  
1.1471-5(a)(3) for rules to determine the holder of an account. The 
participating FFI is also required to retain a record of the 
documentation collected or otherwise maintained that meets the 
requirements described in this paragraph (c) when making certain 
payments to an account holder or payee (if other than an account 
holder) to determine whether withholding applies under paragraph (b) of 
this section or whether reporting applies under

[[Page 5945]]

Sec.  1.1474-1(d)(4)(iii)(C) and any payee for which it provides the 
certification described in Sec.  1.1471-3(c)(9)(iii)(A) to another 
withholding agent.
    (ii) Standards of knowledge--(A) In general. A participating FFI 
may rely on valid documentation that is collected pursuant to the due 
diligence procedures set forth in this paragraph (c) or that is 
otherwise maintained in the participating FFI's files, unless the 
participating FFI knows or has reason to know that such documentation 
is unreliable or incorrect. For purposes of a participating FFI 
documenting an account holder under this paragraph (c), the 
requirements for the validity of withholding certificates, written 
statements, and documentary evidence provided in Sec.  1.1471-3(c) 
shall apply regardless of whether the participating FFI makes a payment 
to the account. Except as otherwise provided paragraph (c)(2)(ii)(B) of 
this section (certain mergers or bulk acquisitions) and in paragraph 
(c)(5)(iv) of this section (preexisting individual accounts), to 
determine whether a participating FFI knows or has reason to know that 
the documentation collected or otherwise maintained with respect to the 
account holder is unreliable or incorrect, the standards of knowledge 
provided in Sec.  1.1471-3(e) shall apply regardless of whether the 
participating FFI makes a payment to the account. See Sec.  1.1471-
3(c)(8) and (9) for the requirement to obtain documentation on an 
account-by-account basis and the exceptions to this requirement.
    (B) Limits on reason to know with respect to certain accounts 
acquired in merger or bulk acquisition. A participating FFI that 
acquires accounts of another financial institution either in a merger 
or bulk acquisition of accounts for value (other than a related party 
transaction described in Sec.  1.1471-3(c)(9)(v)) may apply the 
limitations on reason to know provided in paragraphs (c)(2)(ii)(B)(1) 
or (2) of this section (as applicable and subject to the conditions 
therein), or the rules of Sec.  1.1471-3(c)(9)(v) to rely upon 
documentation collected by another financial institution for an account 
acquired either in a merger or bulk acquisition of accounts for value.
    (1) In general. The participating FFI may treat accounts acquired 
in a transaction described in this paragraph (c)(2)(ii)(B) as 
preexisting accounts for purposes of applying the identification and 
documentation procedures of this paragraph (c) by substituting the date 
of acquisition of such accounts for the effective date of the FFI 
agreement.
    (2) Participating FFIs and certain deemed-compliant FFIs that apply 
the due diligence rules, and U.S. financial institutions. If a 
participating FFI (transferee FFI) acquires accounts of another 
participating FFI or deemed-compliant FFI (including a U.S. branch of 
either such FFI) that applies the due diligence requirements of this 
paragraph (c) as a condition of its status (as described in Sec.  
1.1471-5(f)), or of a U.S. financial institution (transferor FI), the 
transferee FFI may rely on the chapter 4 status determination made by 
the transferor FI for an account holder and will not be subject to the 
standards of knowledge set forth in paragraph (c)(2)(ii)(A) of this 
section until there is a change in circumstances with respect to the 
account if the following conditions are met--
    (i) The transferee FFI does not have actual knowledge that the 
chapter 4 status determination provided by the transferor FI is 
unreliable or incorrect;
    (ii) For the certification period following the acquisition of such 
accounts (described in paragraph (f)(3)(i) of this section), the 
transferee FFI acquiring the accounts tests a sample of the acquired 
accounts to determine if the chapter 4 status determinations made by 
the transferor FI are reliable;
    (iii) In the case of a transferor FI that is a branch of a 
participating FFI or of a registered deemed-compliant FFI (other than a 
U.S. branch that is treated as a U.S. person) or that is a deemed-
compliant FFI that applies the requisite due diligence rules of this 
paragraph (c) as a condition of its status, the transferor FI provides 
a written representation to the transferee FFI acquiring the accounts 
that the transferor FI has applied the due diligence procedures of this 
paragraph (c) with respect to the transferred accounts and, in the case 
of a transferor FI that is a participating FFI, has complied with the 
requirements of paragraph (f)(2) of this section; and
    (iv) In the case of a transferor FI that is a U.S. financial 
institution or that is a U.S branch of a participating FFI or of a 
registered deemed-compliant FFI that is treated as a U.S. person, the 
transferee FFI may rely on the chapter 4 status determinations for a 
payee that is an entity only if prior to the date of transfer the U.S. 
financial institution or U.S. branch made a withholdable payment to the 
payee or, for a payee that is an individual, only if the U.S. financial 
institution or U.S. branch made a reportable payment (as defined under 
section 3406(b)) to the payee.
    (iii) Change in circumstances--(A) Obligation to identify a change 
in circumstances. A participating FFI is required to institute 
procedures to ensure that any change in circumstances, as described in 
paragraph (c)(2)(iii)(B) of this section, is identified by the 
participating FFI, including procedures to ensure that a relationship 
manager identifies any change in circumstances with respect to an 
account. For example, if a relationship manager is notified that the 
account holder has a mailing address in the United States when there 
was no U.S. address previously associated with the account, the 
participating FFI will be required to treat the new address as a change 
in circumstances and will be required to retain a record of the 
appropriate documentation from the account holder as described in 
paragraph (c)(5)(iv)(B)(2)(iii) of this section.
    (B) Definition of change in circumstances. For purposes of this 
section, a change in circumstances (as defined in Sec.  1.1471-
3(c)(6)(ii)(D)) includes any change or addition of information to the 
account holder's account (including the addition, substitution, or 
other change of an account holder) or any change or addition of 
information to any account associated with such account (applying the 
account aggregation rules described in Sec.  1.1471-5(b)(4)(iii) or by 
treating the accounts as consolidated obligations) if such change or 
addition of information affects the chapter 4 status of the account 
holder. For example, if a holder of an account (including a preexisting 
account) opens another account that is linked to such account in the 
participating FFI's computerized system as described under Sec.  
1.1471-5(b)(4)(iii) and as part of the participating FFI's account 
opening procedures the account holder provides a U.S. telephone number 
for such other account, this is a change in circumstances with respect 
to the first mentioned account. With respect to a preexisting account 
that meets a documentation exception described in paragraphs 
(c)(3)(iii) and (c)(5)(iii) of this section, a change in circumstances 
also includes a change in account balance or value in a subsequent year 
that causes the account no longer to meet the documentation exception.
    (C) Requirements following a change in circumstances. With respect 
to an individual account or an account held by a passive NFFE for which 
there is a change in circumstances with respect to the information 
regarding its owners, following a change in circumstances the 
participating FFI must retain a record of the appropriate documentation 
described in paragraph (c)(3) or (c)(5)(iv)(B)(2) of this section 
within the time period provided by Sec.  1.1471-5(g)(3)(iii) or, if 
unable to do so, must

[[Page 5946]]

treat such account as held by a recalcitrant account holder. With 
respect to an account held by an entity other than a passive NFFE 
described in the preceding sentence, following a change in 
circumstances, the participating FFI must retain a record of the 
appropriate documentation described in paragraph (c)(3) of this section 
by the earlier of 90 days or the date a withholdable payment or foreign 
passthru payment is made to the account or, if unable to do so, must 
treat such account as held by a nonparticipating FFI.
    (iv) Record retention. A participating FFI must retain a record of 
the documentation collected (or otherwise maintained) to establish the 
chapter 4 status of an account holder or payee pursuant to the 
requirements of this paragraph (c)(2)(iv). A participating FFI will be 
treated as having retained a record of a withholding certificate, 
written statement, or documentary evidence if the participating FFI 
retains either an original, certified copy, or photocopy (including a 
microfiche, scan, or similar means of record retention) of the 
withholding certificate, written statement, or documentary evidence 
collected to determine the chapter 4 status of the account holder for 
six calendar years following the year in which the due diligence 
procedures of this paragraph (c) were performed for the account. With 
respect to documentary evidence for an offshore obligation, however, a 
participating FFI that is not required to retain copies of 
documentation reviewed pursuant to its AML due diligence will be 
treated as having retained a record of such documentation if the 
participating FFI retains a record in its files noting the date the 
documentation was reviewed, each type of document, the document's 
identification number (if any) (for example, passport number), and 
whether any U.S. indicia were identified. The previous sentence applies 
with respect to an offshore obligation that is also a preexisting 
obligation, except, in such case, the requirement to record whether the 
documentation contained U.S. indicia does not apply. A participating 
FFI must also retain a record of any searches, including search results 
provided by third-party credit agencies as described in paragraph 
(c)(4)(ii) of this section, results from electronic searches, and 
requests made and responses to relationship manager inquiries for six 
calendar years following the year in which the due diligence procedures 
of this paragraph (c) were performed for the account. A participating 
FFI may be required to extend the six year retention period if the IRS 
requests such extension prior to the end of the six year retention 
period. Notwithstanding the preceding sentences, a participating FFI 
must retain a record of the chapter 4 status of an account holder or 
payee for as long as the FFI maintains the account or obligation. See 
Sec.  1.1471-3(c)(6)(iii)(A) for the record retention period applicable 
to a participating FFI that is a withholding agent with respect to 
documentation collected (or otherwise maintained) for a payee.
    (v) Special rule for U.S. branches of participating FFIs that are 
treated as U.S. persons. A U.S. branch of a participating FFI that is 
treated as a U.S. person shall apply, in lieu of the due diligence 
requirements of this paragraph (c), the due diligence requirements of 
Sec.  1.1471-3 to determine the chapter 4 status of account holders and 
payees that are entities and shall apply the documentation requirements 
of chapter 3 or 61 (as applicable) with respect to individual account 
holders. See paragraph (b)(6) of this section for special withholding 
rules and paragraph (d)(2)(iii)(B) of this section for special 
reporting rules applicable to such U.S. branches.
    (3) Identification and documentation procedure for entity accounts 
and payees--(i) In general. With respect to accounts held by entities, 
unless the documentation exception described in paragraph (c)(3)(iii) 
of this section applies, a participating FFI must determine if the 
account is a U.S. account or an account held by a recalcitrant account 
holder or nonparticipating FFI by applying the principles of Sec.  
1.1471-3(b), (c), and (d) to establish the chapter 4 status of each 
account holder and each payee regardless of whether the participating 
FFI makes a payment to the account. If an account holder receiving a 
payment is not the payee of the payment under Sec. Sec.  1.1471-3(a) 
and 1.1472-1(d)(3), the participating FFI is also required to establish 
the chapter 4 status of the payee or payees in order to determine 
whether withholding applies under paragraph (b) of this section.
    (ii) Timeframe for applying identification and documentation 
procedure for entity accounts and payees. For preexisting entity 
accounts, a participating FFI must perform the requisite identification 
and documentation procedures within six months of the effective date of 
the FFI agreement for any account holder that is a prima facie FFI, as 
defined in Sec.  1.1471-2(a)(4)(ii)(B), and within two years of the 
effective date of the FFI agreement for all other entity accounts, 
except as otherwise provided in paragraph (c)(3)(iii) of this section. 
For accounts that are not preexisting accounts, the participating FFI 
must perform the requisite identification and documentation procedures 
by the earlier of the date a withholdable payment or a foreign passthru 
payment is made with respect to the account or within 90 days of the 
date the participating FFI opens the account. Notwithstanding the 
foregoing sentences of this paragraph (c)(3)(ii), with respect to a 
preexisting obligation issued in nonregistered (bearer) form by an 
investment entity, the investment entity is required to perform the 
requisite identification and documentation procedures at the time a 
payment is collected by the beneficial owner of the payment (including 
a beneficial owner that collects the payment through an intermediary or 
agent). If the participating FFI cannot obtain all the documentation 
described in Sec.  1.1471-3(d) or if the participating FFI knows or has 
reason to know that the documentation provided for an entity account is 
unreliable or incorrect (by applying the standards of knowledge 
applicable to entities in Sec.  1.1471-3(e) as modified by paragraph 
(c)(2)(ii)), the participating FFI shall apply the presumption rules of 
Sec.  1.1471-3(f) (as applicable to entities) to determine the chapter 
4 status of the account holder. In the case of an account held by a 
passive NFFE that provides the documentation described in Sec.  1.1471-
3(d)(12) to establish its status as a passive NFFE but fails to provide 
the information regarding its owners, see Sec.  1.1471-5(g)(2)(iv) for 
the requirement to treat the account as held by a recalcitrant account 
holder.
    (iii) Documentation exception for certain preexisting entity 
accounts--(A) Accounts to which this exception applies. Unless the 
participating FFI elects otherwise pursuant to paragraph (c)(3)(iii)(C) 
of this section, a participating FFI is not required to perform the 
identification and documentation procedure contained in this paragraph 
(c)(3) with respect to a preexisting entity account the aggregate 
balance or value of which is $250,000 or less if no holder of such 
account that has previously been documented by the FFI as a U.S. person 
for purposes of chapter 3 or 61 is a specified U.S. person. For 
purposes of applying this exception, the account balance must be 
determined as of the effective date of the FFI agreement and the 
aggregation rules of paragraph (c)(3)(iii)(B) of this section shall 
apply. An account that meets this exception will cease to meet this 
exception as of the end of any

[[Page 5947]]

subsequent calendar year in which the account balance or value exceeds 
$1,000,000, applying the aggregation rules of paragraph (c)(3)(iii)(B) 
of this section, or as of the date on which there is another change in 
circumstances with respect to the account or any account aggregated 
with the account.
    (B) Aggregation of entity accounts. For purposes of determining the 
aggregate balance or value of accounts held by an entity in applying 
the exception in this paragraph (c)(3)(iii), an FFI is required to 
aggregate the balance or value of all accounts held (in whole or in 
part) by the same account holder to the extent required under Sec.  
1.1471-5(b)(4)(iii)(A) and (B).
    (C) Election to forgo exception. A participating FFI may elect to 
forgo the exception described in this paragraph (c)(3)(iii) by applying 
the identification and documentation procedures provided in this 
paragraph (c)(3) within the time period provided by paragraph 
(c)(3)(ii) of this section or otherwise applying the presumption rules 
of Sec.  1.1471-3(f) to determine the chapter 4 status of the account 
holder.
    (4) Identification and documentation procedure for individual 
accounts other than preexisting accounts--(i) In general. With respect 
to an individual account that is not a preexisting account or an 
account described under paragraph (c)(4)(iii)(B) of this section or 
Sec.  1.1471-5(a)(4)(i) (providing an exception to U.S. account status 
for certain depository accounts with an aggregate balance or value of 
$50,000 or less), a participating FFI must determine if the account is 
a U.S. account or non-U.S. account by retaining a record of certain 
documentation to establish the chapter 4 status of each account holder. 
Specifically, a participating FFI must retain a record of documentary 
evidence that meets the requirements of Sec.  1.1471-3(c)(5) (as 
applicable to individuals), the information described in paragraph 
(c)(4)(ii) or (c)(4)(iii)(A) of this section, or a withholding 
certificate to establish an account holder's status as a foreign 
person. Except as otherwise provided in paragraph (c)(4)(iii)(A) of 
this section, the participating FFI must also review all information 
collected in connection with the opening or maintenance of each 
account, including documentation collected as part of the participating 
FFI's account opening procedures and documentation collected for other 
regulatory purposes, and apply the standards of knowledge in paragraph 
(c)(2)(ii) of this section to determine if an account holder's claim of 
foreign status is unreliable or incorrect. If the participating FFI is 
not able to establish an account holder's status as a foreign person, 
the participating FFI must retain a record of either a Form W-9 or U.S. 
TIN (in any manner) and a valid and effective waiver described in 
section 1471(b)(1)(F)(i), if necessary, to establish an account 
holder's status as a U.S. person and to confirm that the account is a 
U.S. account. A participating FFI must complete the requisite 
identification and documentation procedures with respect to each 
account within the time period provided by Sec.  1.1471-5(g)(3)(ii), 
or, if unable to do so, it must treat such account as held by a 
recalcitrant account holder. The presumption rules of Sec.  1.1471-3(f) 
do not apply to individual account holders of a participating FFI.
    (ii) Reliance on third party for identification of individual 
accounts other than preexisting accounts. A participating FFI may 
establish an account holder's status as a foreign person based on 
information provided by a third-party credit agency only if the 
following conditions are met--
    (A) As part of the participating FFI's account opening procedures, 
the account holder provides a residence address outside the United 
States and attests in writing that the account holder is not a U.S. 
citizen or resident;
    (B) The third-party credit agency verifies the account holder's 
claimed residence with at least one government data source from the 
jurisdiction in which the participating FFI (or branch thereof) 
operates or the account holder claims residence; and
    (C) The participating FFI (or branch thereof) relies on the 
information provided by the third-party credit agency for purposes of 
satisfying AML due diligence with respect to the account in a FATF-
compliant jurisdiction.
    (iii) Alternative identification and documentation procedure for 
certain cash value insurance or annuity contracts--(A) Group cash value 
insurance contracts or group annuity contracts. A participating FFI may 
treat an account that is a group cash value insurance contract or group 
annuity contract and that meets the requirements of this paragraph 
(c)(4)(iii)(A) as a non-U.S. account until the date on which an amount 
is payable to an employee/certificate holder or beneficiary, if the 
participating FFI obtains a certification from an employer that no 
employee/certificate holder (account holder) is a U.S. person. A 
participating FFI is also not required to review all the account 
information collected by the FFI to determine if an account holder's 
claim of foreign status is unreliable or incorrect. An account that is 
a group cash value insurance contract or group annuity contract meets 
the requirements of this paragraph (c)(4)(iii)(A) if--
    (1) The group life insurance contract or a group annuity contract 
issued to an employer and covers twenty-five or more employee/
certificate holders;
    (2) The employee/certificate holders are entitled to receive any 
contract value and to name beneficiaries for the benefit payable upon 
the employee's death; and
    (3) The aggregate amount payable to any employee/certificate holder 
or beneficiary does not exceed $1,000,000.
    (B) Accounts held by beneficiaries of a cash value insurance 
contract that is a life insurance contract. A participating FFI may 
presume that an individual beneficiary (other than the owner) of a cash 
value insurance contract that is a life insurance contract (account 
holder) receiving a death benefit is a foreign person and treat such 
account as a non-U.S. account unless the participating FFI has actual 
knowledge or reason to know that the beneficiary is a U.S. person. A 
participating FFI has reason to know that a beneficiary of a cash value 
insurance contract is a U.S. person if the information collected by the 
participating FFI and associated with the beneficiary contains U.S. 
indicia as described in paragraph (c)(5)(iv)(B)(1) of this section. If 
a participating FFI has actual knowledge or reason to know that the 
beneficiary is a U.S. person, the participating FFI must retain a 
record of the appropriate documentation described in paragraph 
(c)(5)(iv)(B)(2) of this section.
    (5) Identification and documentation procedure for preexisting 
individual accounts--(i) In general. With respect to a preexisting 
individual account, unless the account is an account described in Sec.  
1.1471-5(a)(4)(i) (providing exception to U.S. account status for 
certain depository accounts with an aggregate balance or value of 
$50,000 or less), a participating FFI may follow the identification and 
documentation procedures described below in paragraph (c)(5)(ii) 
through (iv) of this section (as applicable), in lieu of the 
identification and documentation procedures described in paragraph 
(c)(4) of this section, to determine if an account that is a 
preexisting account is a U.S. account, non-U.S. account, or account 
held by a recalcitrant account holder. A participating FFI must first 
determine whether there are any U.S. indicia associated with the 
account (as defined in paragraph (c)(5)(iv)(B)(1) of this section), and 
second, if there are U.S. indicia associated with the account, retain a 
record of the documentation described in paragraph (c)(5)(iv)(B)(2) of 
this section to

[[Page 5948]]

establish the account holder's chapter 4 status. For this purpose, the 
presumption rules of Sec.  1.1471-3(f) do not apply. A participating 
FFI must complete the requisite identification and documentation 
procedures with respect to each account within the time period provided 
by Sec.  1.1471-5(g)(3)(i) or (ii) (as applicable) or, if unable to do 
so, must treat such account as held by a recalcitrant account holder. A 
participating FFI may continue to treat an account with no U.S. indicia 
or an account that meets a documentation exception described in 
paragraph (c)(5)(iii) of this section or Sec.  1.1471-5(a)(4)(i) 
(providing exception to U.S. account status for certain depository 
accounts with an aggregate balance or value of $50,000 or less) as a 
non-U.S. account, until there is a change in circumstances with respect 
to the account as described in paragraph (c)(2)(iii) of this section.
    (ii) Special rule for preexisting individual accounts previously 
documented as U.S. accounts for purposes of chapter 3 or 61. If a 
participating FFI has documented an individual account holder as a U.S. 
person for purposes of chapter 3 or 61 and such account holder is a 
specified U.S. person, the account holder's account will be treated as 
a U.S. account for chapter 4 purposes and the identification and 
documentation procedures in paragraph (c)(5)(i) and (iv) of this 
section will not apply.
    (iii) Exceptions for certain low value preexisting individual 
accounts--(A) Accounts to which an exception applies. Unless the 
participating FFI elects otherwise pursuant to paragraph (c)(5)(iii)(C) 
of this section, a participating FFI is not required to perform 
requisite identification and documentation procedures described in 
paragraph (c)(5)(i) and (iv) of this section with respect to either a 
preexisting individual account, other than a cash value insurance or 
annuity contract, the aggregate balance or value of which is $50,000 or 
less, or a preexisting individual account that is a cash value 
insurance or annuity contract described in Sec.  1.1471-5(b)(1)(iv) the 
aggregate balance or value of which is $250,000 or less. For purposes 
of applying these exceptions, the account balance must be determined as 
of the effective date of the FFI agreement and the aggregation rules of 
paragraph (c)(5)(iii)(B) of this section shall apply. An account that 
meets either of these exceptions will cease to meet these exceptions as 
of the end of any subsequent calendar year in which the account balance 
or value exceeds $1,000,000, applying the aggregation rules of 
paragraph (c)(3)(iii)(B) of this section, or until there is another 
change in circumstances with respect to the account or any account 
aggregated with the account.
    (B) Aggregation of accounts. For purposes of determining the 
aggregate balance or value of a preexisting individual account, other 
than an account that is cash value insurance or annuity contract, an 
FFI is required to aggregate the balance or value of all accounts that 
are not cash value insurance or annuity contracts to the extent 
required under Sec.  1.1471-5(b)(4)(iii)(A) or (B). For purposes of 
determining the aggregate balance or value of preexisting individual 
account that is a cash value insurance or annuity contract, an FFI will 
be required to aggregate the balance or value of all accounts that are 
cash value insurance or annuity contracts to the extent required under 
Sec.  1.1471-5(b)(4)(iii)(A) or (B).
    (C) Election to forgo exception. A participating FFI may elect to 
forgo the exceptions described in paragraph (c)(5)(iii) of this section 
by applying the identification and documentation procedures provided in 
this paragraph (c) within the time provided by paragraph (c)(5)(i) of 
this section or otherwise treating the account as held by a 
recalcitrant account holder pursuant to Sec.  1.1471-5(g).
    (iv) Specific identification and documentation procedures for 
preexisting individual accounts--(A) In general. A participating FFI 
applying the identification and documentation procedures of this 
paragraph (c)(5)(iv) must review its preexisting individual accounts 
(applying the electronic search described in paragraph (c)(5)(iv)(C) of 
this section and, if appropriate, the enhanced review for high-value 
accounts described in paragraph (c)(5)(iv)(D) of this section) to 
determine if there are any U.S. indicia (as described in paragraph 
(c)(5)(iv)(B)(1) of this section) associated with the account. If no 
U.S. indicia are identified with respect to an account, the 
participating FFI may treat the account as a non-U.S. account. If U.S. 
indicia are identified with respect to an account, the participating 
FFI must retain a record of the appropriate documentation described in 
paragraph (c)(5)(iv)(B)(2) of this section to establish the account 
holder's status as a foreign person. A participating FFI that follows 
the procedures described in this paragraph (c)(5)(iv) (as applicable) 
with respect to its preexisting individual accounts will not be treated 
as having reason to know that the determination made with respect to 
the account was unreliable or incorrect because of information 
contained in any account files that the participating FFI did not 
review and was not required to review under the applicable 
identification procedure. Thus, for example, if a participating FFI was 
only required to perform an electronic search with respect to a 
preexisting individual account and no U.S. indicia were identified in 
the results of the electronic search, the participating FFI would not 
have reason to know that the individual account holder was a U.S. 
person, even if the participating FFI had on file (but was not required 
to and did not review) a copy of the individual's passport that 
indicates that the individual was born in the United States.
    (B) U.S. indicia and relevant documentation rules--(1) U.S. 
indicia. A participating FFI must review an account holder's account 
information to the extent required under paragraphs (c)(5)(iv)(C) and 
(D) of this section for any of the following U.S. indicia:
    (i) Designation of the account holder as a U.S. citizen or 
resident;
    (ii) A U.S. place of birth;
    (iii) A current U.S. residence address or U.S. mailing address 
(including a U.S. post office box);
    (iv) A current U.S. telephone number (regardless of whether such 
number is the only telephone number associated with the account 
holder);
    (v) Standing instructions to pay amounts from the account to an 
account maintained in the United States;
    (vi) A current power of attorney or signatory authority granted to 
a person with a U.S. address; or
    (vii) An ``in-care-of'' address or a ``hold mail'' address that is 
the sole address the FFI has identified for the account holder.
    (2) Documentation to be retained upon identifying U.S. indicia. If 
U.S. indicia are identified with respect to an account holder's account 
information, a participating FFI must retain a record of the 
documentation described in paragraphs (c)(5)(iv)(B)(2)(i) through (vii) 
of this section, applicable to the U.S. indicia identified, to 
establish the account holder's status as a foreign person. If the 
participating FFI cannot establish an account holder's status as a 
foreign person based on such documentation, the participating FFI must 
retain a record of a Form W-9 and a valid and effective waiver as 
described in section 1471(b)(1)(F)(ii), if necessary, to confirm that 
the account is a U.S. account or, if unable to do so, must treat the 
account as held by a recalcitrant account holder.
    (i) Designation of account holder as a U.S. citizen or resident. If 
the

[[Page 5949]]

information required to be reviewed with respect to the account 
contains a designation of an account holder as a U.S. citizen or 
resident, the participating FFI must retain a record of a withholding 
certificate and documentary evidence described in Sec.  1.1471-
3(c)(5)(i)(B) evidencing citizenship in a country other than the United 
States in order to establish the account holder's status as a foreign 
person.
    (ii) Unambiguous indication of a U.S. place of birth. If 
information required to be reviewed with respect to the account 
unambiguously indicates a U.S. place of birth for an account holder, 
the participating FFI must retain a record of a form of documentary 
evidence described in Sec.  1.1471-3(c)(5)(i)(B) evidencing citizenship 
in a country other than the United States and a copy of the 
individual's Certificate of Loss of Nationality of the United States, 
or, alternatively, a withholding certificate, a form of documentary 
evidence described in Sec.  1.1471-3(c)(5)(i)(B) evidencing citizenship 
in a country other than the United States, and a reasonable written 
explanation of the account holder's renunciation of U.S. citizenship or 
the reason the account holder did not obtain U.S. citizenship at birth 
in order to establish the account holder's status as a foreign person.
    (iii) U.S. address or U.S. mailing address. If information required 
to be reviewed with respect to the account contains a U.S. address or a 
U.S. mailing address for an account holder, the participating FFI must 
retain a record of a withholding certificate and a form of documentary 
evidence described in Sec.  1.1471-3(c)(5)(i)(A) through (C) in order 
to establish the account holder's status as a foreign person.
    (iv) Only U.S. telephone numbers. If information required to be 
reviewed with respect to the account contains one or more telephone 
numbers in the United States and no other telephone numbers for an 
account holder, the participating FFI must retain a record of a 
withholding certificate and a form of documentary evidence described in 
Sec.  1.1471-3(c)(5)(i)(A) through (C) in order to establish the 
account holder's status as a foreign person.
    (v) U.S. telephone numbers and non-U.S. telephone numbers. If 
information required to be reviewed with respect to the account 
contains one or more telephone numbers in the United States and at 
least one telephone number outside the United States for an account 
holder, the participating FFI must retain a record of a withholding 
certificate or a form of documentary evidence described in Sec.  
1.1471-3(c)(5)(i)(A) through (C) in order to establish the account 
holder's status as a foreign person.
    (vi) Standing instructions to pay amounts. If information required 
to be reviewed with respect to the account contains standing 
instructions to pay amounts from the account to an account maintained 
in the United States for an account holder, the participating FFI must 
retain a record of a withholding certificate and a form of documentary 
evidence described in Sec.  1.1471-3(c)(5)(i)(A) through (C) in order 
to establish the account holder's status as a foreign person.
    (vii) Power of attorney or signatory authority granted to a person 
with a U.S. address or ``in-care-of'' address or ``hold mail'' address. 
If information required to be reviewed with respect to the account 
includes a power of attorney or signatory authority granted to a person 
with a U.S. address or contains an ``in-care-of'' address or ``hold 
mail'' address that is the sole address identified for the account 
holder, the participating FFI must retain a record of either a 
withholding certificate or a form of documentary evidence described in 
Sec.  1.1471-3(c)(5)(i)(A) through (C) in order to establish the 
account holder's status as a foreign person.
    (C) Electronic search for identifying U.S. indicia. Except as 
provided in paragraph (c)(5)(iv)(D) of this section relating to the 
enhanced review for high-value accounts, a participating FFI may rely 
solely on a review of the electronically searchable information 
associated with an account and maintained by the participating FFI to 
determine if there are any of the U.S. indicia described in paragraph 
(c)(5)(iv)(B)(1) of this section associated with the account. For 
purposes of this paragraph (c)(5)(iv)(C), however, an FFI will not be 
required to treat as U.S. indicia an in-care-of address or a hold mail 
address that is the sole address identified for the account holder.
    (D) Enhanced review for identifying U.S. indicia in the case of 
certain high-value accounts--(1) In general. With respect to 
preexisting individual accounts that have a balance or value that 
exceeds $1,000,000 as of the effective date of the FFI agreement, or at 
the end of any subsequent calendar year (``high-value accounts''), a 
participating FFI must apply the enhanced review described in this 
paragraph (c)(5)(iv)(D) in addition to the electronic search described 
in paragraph (c)(5)(iv)(C) of this section to identify any U.S. indicia 
described in paragraph (c)(5)(iv)(B)(1) of this section associated with 
the account. For purposes of determining the balance or value of an 
account, a participating FFI must apply the aggregation rules Sec.  
1.1471-5(b)(4)(iii)(A) and (B). If a participating FFI applied the 
enhanced review described in this paragraph (c)(5)(iv)(D) to an account 
in a previous year, the participating FFI will not be required to 
reapply such procedures to such account in a subsequent year.
    (2) Relationship manager inquiry. With respect to all high-value 
accounts, a participating FFI must identify accounts to which a 
relationship manager is assigned (including any accounts aggregated 
with such account) and for which the relationship manager has actual 
knowledge that the account holder is a U.S. citizen or resident.
    (3) Additional review of non-electronic records. Except as provided 
in paragraph (c)(5)(iv)(E) of this section, and except with respect to 
any account for which the participating FFI has retained a record of a 
withholding certificate and documentary evidence described in Sec.  
1.1471-3(c)(5) establishing the account holder's foreign status, a 
participating FFI must review to identify any U.S. indicia the current 
customer master file of a high-value account and, if not contained in 
the current customer master file, the following documents described in 
paragraphs (c)(5)(iv)(D)(3)(i) through (v) of this section that are 
associated with such an account and were obtained by the participating 
FFI within the five calendar years preceding the later of the effective 
date of the FFI agreement, or the end of the calendar year in which the 
account exceeded the $1,000,000 threshold described in paragraph 
(c)(5)(iv)(D)(1) of this section. The documents to be reviewed by the 
participating FFI if not contained in the current customer master file 
are--
    (i) The most recent withholding certificate, written statement, and 
documentary evidence;
    (ii) The most recent account opening contract or documentation;
    (iii) The most recent documentation obtained by the participating 
FFI for purposes of AML due diligence or for other regulatory purposes;
    (iv) Any power of attorney or signature authority forms currently 
in effect; and
    (v) Any standing instructions to pay amounts to another account.
    (4) Limitations on the enhanced review in the case of comprehensive 
electronically searchable information. A participating FFI is not 
required to apply the enhanced review of this paragraph (c)(5)(iv)(D) 
and may instead rely on the electronic search described in paragraph 
(c)(5)(iv)(C) of this section to identify U.S. indicia to the extent 
the

[[Page 5950]]

following information is available in the FFI's electronically 
searchable information--
    (i) The account holder's nationality and/or residence status;
    (ii) The account holder's current residence address and mailing 
address;
    (iii) The account holder's current telephone number(s);
    (iv) Whether there are standing instructions to pay amounts to 
another account;
    (v) Whether there is a current ``in-care-of'' address or ``hold 
mail'' address for the account holder if no other residence or mailing 
address is found for the account; and
    (vi) Whether there is any power of attorney or signatory authority 
for the account.
    (E) Exception for preexisting individual accounts that a 
participating FFI has documented as held by foreign individuals for 
purposes of meeting its obligations under chapter 61 or its QI, WP, or 
WT agreement. A participating FFI that has previously obtained 
documentation from an account holder to establish the account holder's 
status as a foreign individual in order to meet its obligations under 
its QI, WP, or WT agreement with the IRS, or to fulfill its reporting 
obligations as a U.S. payor under chapter 61, is not required to 
perform the electronic search described in paragraph (c)(5)(iv)(C) of 
this section or the enhanced review described in paragraph 
(c)(5)(iv)(D)(3) of this section for such account. The participating 
FFI is required, however, to perform the relationship manager inquiry 
described in paragraph (c)(5)(iv)(D)(2) of this section if the account 
is a high-value account described in paragraph (c)(5)(iv)(D)(1) of this 
section. For purposes of this paragraph (c)(5)(iv)(E), a participating 
FFI has documented an account holder's foreign status under chapter 61 
if the participating FFI has retained a record of the documentation 
required under chapter 61 to establish the foreign status of an 
individual and the account received a reportable payment as defined 
under section 3406(b) in any prior year. In the case of a participating 
FFI that is a QI, WP, or WT, the participating FFI has documented an 
account holder's foreign status under its QI, WP, or WT agreement (as 
applicable) if the participating FFI has met the relevant documentation 
requirements of its agreement with respect to an account holder that 
received a reportable amount in any year in which its agreement was in 
effect.
    (6) Examples. The following examples illustrate the documentation 
exceptions provided in paragraphs (c)(3)(iii) and (c)(5)(iii) of this 
section:

    Example 1. Aggregation rules applicable to preexisting 
individual accounts. U, a U.S. resident individual, holds 100 shares 
of common stock of FFI1, an investment entity. On the effective date 
of FFI1's FFI agreement, the common stock held by U is worth 
$45,000. U also holds shares of preferred stock of FFI1. On the 
effective date of FFI1's FFI agreement, U's preferred stock in FFI1 
is worth $35,000. Neither FFI1's common stock nor FFI1's preferred 
stock is regularly traded on an established securities market. U 
also holds debt instruments issued by FFI1 that are not regularly 
traded on an established securities market. On the effective date of 
FFI1's FFI agreement, U's FFI1 debt instruments are worth $15,000. 
U's common and preferred equity interests are associated with U and 
with one another by reference to U's foreign tax identification 
number in FFI1's computerized information management system. 
However, U's debt instruments are not associated with U's equity 
interests in FFI1's computerized information management system. None 
of these accounts are managed by a relationship manager. Previously, 
FFI1 was not required to and did not obtain a Form W-9 from U for 
purposes of chapter 3 or 61. U's FFI1 debt interests are eligible 
for the paragraph (c)(5)(iii)(A) documentation exception because 
that account does not exceed the $50,000 threshold described in 
paragraph (c)(5)(iii)(A)(1) of this section, taking into account the 
aggregation rule described in paragraph (c)(5)(iii)(A)(2) of this 
section. However, U's common and preferred equity interests are not 
eligible for the paragraph (c)(5)(iii)(A) documentation exception 
because the accounts exceed the $50,000 threshold described in 
paragraph (c)(5)(iii)(A)(1) of this section, taking into account the 
aggregation rules described in Sec.  1.1471-5(b)(4)(iii) pursuant to 
the requirements of paragraph (c)(5)(iii)(A)(2) of this section.
    Example 2. Aggregation rules for owners of entity accounts. In 
Year 1, U, a U.S. resident individual, maintains a depository 
account that is a preexisting account in CB, a commercial bank. The 
balance in U's depository account on the first date CB's FFI 
agreement is in effect is $20,000. U also owns 100% of Entity X, 
which maintains a depository account that is a preexisting account 
in CB, and 50% of Entity Y, which maintains a depository account 
that is a preexisting account in CB. The balance in Entity X's 
account on the first date CB's FFI agreement is in effect is 
$130,000 and the balance in Entity Y's account on effective date of 
CB's FFI agreement is $110,000. All three accounts are associated 
with one another in CB's computerized information management system 
by reference to U's foreign tax identification number. None of the 
accounts are managed by a relationship manager. Previously, CB was 
not required to and did not obtain a Form W-9 from U for purposes of 
chapter 3 or 61. U's depository account qualifies for the Sec.  
1.1471-5(a)(4)(i) exception to U.S. account status because it does 
not exceed the $50,000 threshold, taking into account the 
aggregation rule described in Sec.  1.1471-5(a)(4)(i)(B)(2). Entity 
X's account and Entity Y's account both qualify for the paragraph 
(c)(3)(iii) documentation exception because the accounts do not 
exceed the $250,000 threshold described in paragraph 
(c)(3)(iii)(B)(1) of this section taking into account the 
aggregation rules described in Sec.  1.1471-5(b)(4)(iii) pursuant to 
the requirements of paragraph (c)(3)(iii)(B)(2) of this section.

    (7) Certifications of responsible officer. In order for a 
participating FFI to comply with the requirements of an FFI agreement 
with respect to its identification procedures for preexisting accounts, 
a responsible officer of the participating FFI must certify to the IRS 
regarding the participating FFIs compliance with the diligence 
requirements of this paragraph (c). Such certification must be made no 
later than 60 days following the date that is two years after the 
effective date of the FFI agreement. The responsible officer must 
certify that the participating FFI has completed the review of all 
high-value accounts as required under paragraphs (c)(5)(iv)(D) and (E) 
of this section and treats any account holder of an account for which 
the participating FFI has not retained a record of any required 
documentation as a recalcitrant account holder as required under this 
section and Sec.  1.1471-5(g).The responsible officer must also certify 
that the participating FFI has completed the account identification 
procedures and documentation requirements of this paragraph (c) for all 
other preexisting accounts or, if it has not retained a record of the 
documentation required under this paragraph (c) with respect to an 
account, treats such account in accordance with the requirements of 
this section and Sec.  1.1471-5(g). The responsible officer must also 
certify to the best of the responsible officer's knowledge after 
conducting a reasonable inquiry, that the participating FFI did not 
have any formal or informal practices or procedures in place from 
August 6, 2011, through the date of such certification to assist 
account holders in the avoidance of chapter 4. A reasonable inquiry for 
purposes of this paragraph (c)(7) is a review of the participating 
FFI's procedures and a written inquiry, such as email requests to 
relevant lines of business, that requires responses from relevant 
customer on-boarding and management personnel as to whether they 
engaged in any such practices during that period. Practices or 
procedures that assist account holders in the avoidance of chapter 4 
include, for example, suggesting that account holders split up accounts 
to avoid classification as a high-value account;

[[Page 5951]]

suggesting that account holders of U.S. accounts close, transfer, or 
withdraw from their account to avoid reporting; intentional failures to 
disclose a known U.S. account; suggesting that an account holder remove 
U.S. indicia from its account information; or facilitating the 
manipulation of account balances or values to avoid thresholds. If the 
responsible officer is unable to make any of the certifications 
described in this paragraph (c)(7), the responsible officer must make a 
qualified certification to the IRS stating that such certification 
cannot be made and that corrective actions will be taken by the 
responsible officer.
    (d) Account reporting--(1) Scope of paragraph. This paragraph (d) 
provides rules addressing the information reporting requirements 
applicable to participating FFIs with respect to U.S. accounts, 
accounts held by owner-documented FFIs, and recalcitrant account 
holders. Paragraph (d)(2) of this section describes the accounts 
subject to reporting under this paragraph (d), and specifies the 
participating FFI that is responsible for reporting an account or 
account holder. Paragraph (d)(3) of this section describes the 
information required to be reported and the manner of reporting by a 
participating FFI under section 1471(c)(1) with respect to a U.S. 
account or an account held by an owner-documented FFI. Paragraph (d)(4) 
of this section provides definitions of terms applicable to paragraph 
(d)(3). Paragraph (d)(5) of this section describes the conditions for a 
participating FFI to elect to report its U.S. accounts and accounts 
held by owner-documented FFIs under section 1471(c)(2) and the 
information required to be reported under such election. Paragraph 
(d)(6) of this section provides rules for a participating FFI to report 
its recalcitrant account holders. Paragraph (d)(7) of this section 
provides special transitional reporting rules applicable to reports due 
in 2015 and 2016. Paragraph (d)(8) of this section provides the 
reporting requirements of a participating FFI that is a QI, WP or WT 
with respect to U.S. accounts. See Sec.  301.1474-1(a) of this chapter 
for the requirement for a financial institution to file the information 
required under this paragraph (d) on magnetic media.
    (2) Reporting requirements in general--(i) Accounts subject to 
reporting. Subject to the rules of paragraph (d)(7) of this section, a 
participating FFI shall report by the time and in the manner prescribed 
in paragraph (d)(3)(vii) of this section, the information described in 
paragraph (d)(3) of this section with respect to accounts maintained at 
any time during each calendar year for which the participating FFI is 
responsible for reporting under paragraph (d)(2)(ii) of this section 
and that it is required to treat as U.S. accounts or accounts held by 
owner-documented FFIs, including accounts that are identified as U.S. 
accounts by the end of such calendar year pursuant to a change in 
circumstances during such year as described in paragraph (c)(2)(iii) of 
this section. Alternatively, a participating FFI may elect to report 
under paragraph (d)(5) of this section with respect to such accounts 
for each calendar year. With respect to accounts held by recalcitrant 
account holders, a participating FFI is required to report with respect 
to each calendar year under paragraph (d)(6) of this section and not 
under paragraph (d)(3) or (5) of this section. For separate reporting 
requirements of participating FFIs with respect to payments and for 
transitional rules for participating FFIs to report certain foreign 
reportable amounts made to nonparticipating FFIs, see Sec.  1.1474-
1(d)(4)(iii).
    (ii) Financial institution required to report an account--(A) In 
general. Except as otherwise provided in paragraphs (d)(2)(ii)(B) 
through (E) of this section, the participating FFI that maintains the 
account is responsible for reporting the account in accordance with the 
requirements of paragraph (d)(2)(iii), (3), or (5) of this section (as 
applicable) for each calendar year. Except as otherwise provided in 
paragraph (d)(2)(ii)(C) of this section, a participating FFI is 
responsible for reporting accounts held by recalcitrant account holders 
that it maintains in accordance with the requirements of paragraph 
(d)(6) of this section. A participating FFI is not required to report 
the information required under paragraph (d)(6) of this section with 
respect to an account held by a recalcitrant account holder of another 
participating FFI even if that other participating FFI holds the 
account as an intermediary on behalf of such account holder and 
regardless of whether the participating FFI is required to report 
payments made to the recalcitrant account holder of such other FFI 
under Sec.  1.1474-1(d)(4)(iii).
    (B) Special reporting of account holders of territory financial 
institutions. In the case of an account held by a territory financial 
institution acting as an intermediary with respect to a withholdable 
payment--
    (1) If the territory financial institution agrees to be treated as 
a U.S. person with respect to the payment under Sec.  1.1471-
3(c)(3)(iii)(F), a participating FFI is not required to report under 
paragraph (d)(2)(i) of this section with respect to the account holders 
of the territory financial institution; or
    (2) If the territory financial institution does not agree to be 
treated as a U.S. person with respect to a withholdable payment, the 
participating FFI must report with respect to each specified U.S. 
person or substantial U.S. owner of a foreign entity that is an NFFE 
with respect to which the territory financial institution acts as an 
intermediary and provides the participating FFI with the information 
and documentation required under Sec.  1.1471-3(c)(3)(iii)(G).
    (C) Special reporting of account holders of a sponsored FFI. A 
sponsoring entity that has agreed to fulfill the reporting 
responsibilities of this paragraph (d) on behalf of a sponsored FFI 
shall report in accordance with the requirements of paragraph 
(d)(2)(iii), (3), or (5) of this section (as applicable) with respect 
to each U.S. account and paragraph (d)(6) of this section with respect 
to each account held by a recalcitrant account holder of the sponsored 
FFI to the extent and in the manner required if such sponsored FFI were 
a participating FFI. The sponsoring entity shall identify each 
sponsored FFI for which it is reporting to the extent required on the 
forms for reporting U.S. accounts and recalcitrant account holders and 
the accompanying instructions to the forms.
    (D) Special reporting of accounts held by owner-documented FFIs. A 
participating FFI that maintains an account held by an FFI that it has 
agreed to treat as an owner-documented FFI under Sec.  1.1471-3(d)(6) 
shall report the information described in paragraph (d)(3)(iv) or 
(d)(5)(iii) of this section with respect to each specified U.S. person 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1). See Sec.  1.1474-1(i) for 
the reporting obligations of a participating FFI with respect to a 
payee of an obligation other than an account that it has agreed to 
treat as an owner-documented FFI.
    (E) Branch reporting of accounts. A participating FFI may elect to 
comply with its obligation to report under paragraph (d)(3) or (d)(5) 
of this section by reporting its accounts on a branch-by-branch basis 
with respect to one or more of its branches. A participating FFI that 
makes this election shall use the information reporting number assigned 
to the branch to identify the branch that is reporting its accounts 
separately. A branch that reports under this election shall file with 
the IRS the information required to be reported on accounts that it 
maintains in accordance with the forms and their accompanying 
instructions provided by the IRS for

[[Page 5952]]

purposes of this election. For the definition of a branch that applies 
for purposes of this paragraph (d), see paragraph (e)(2)(ii) of this 
section.
    (iii) Special U.S. account reporting rules for U.S. payors--(A) 
Special reporting rule for U.S. payors other than U.S. branches. 
Participating FFIs that are U.S. payors (other than U.S. branches) that 
report the information required under chapter 61 with respect to 
account holders of accounts that the participating FFI is required to 
treat as U.S. accounts or accounts held by owner-documented FFIs and 
that report the information described in paragraph (d)(5)(ii) of this 
section with respect to each such account shall be treated as having 
satisfied the reporting requirements described in paragraph (d)(2)(i) 
of this section with respect to accounts that the participating FFI is 
required to treat as U.S. accounts or accounts held by owner-documented 
FFIs.
    (B) Special reporting rules for U.S. branches treated as U.S. 
persons. A U.S. branch of a participating FFI that is treated as a U.S. 
person shall be treated as having satisfied the reporting requirements 
described in paragraphs (d)(2)(i) and (d)(2)(ii)(C) of this section if 
it reports under--
    (1) Chapter 61 with respect to account holders that are U.S. non-
exempt recipients;
    (2) Chapter 61 with respect to persons subject to withholding under 
section 3406;
    (3) Section 1.1474-1(i) with respect to substantial U.S. owners of 
NFFEs that are not excepted NFFEs as defined in Sec.  1.1472-1(c) and;
    (4) Section 1.1474-1(i) with respect to specified U.S. persons 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1) of owner-documented FFIs.
    (3) Reporting of accounts under section 1471(c)(1)--(i) In general. 
The participating FFI (or branch thereof) that is responsible for 
reporting an account that it is required to treat as a U.S. account or 
accounts held by owner-documented FFIs under paragraph (d)(2)(ii) of 
this section shall be required to report such account under this 
paragraph (d)(3) for each calendar year unless it elects to report its 
U.S. accounts or accounts held by owner-documented FFIs under paragraph 
(d)(5) of this section.
    (ii) Accounts held by specified U.S. persons. In the case of an 
account described in paragraph (d)(3)(i) of this section that is held 
by one or more specified U.S. persons, a participating FFI is required 
to report the following information under this paragraph (d)(3)--
    (A) The name, address, and TIN of each account holder that is a 
specified U.S. person;
    (B) The account number;
    (C) The account balance or value of the account;
    (D) The payments made with respect to the account, as described in 
paragraph (d)(4)(iv) of this section, during the calendar year; and
    (E) Such other information as is otherwise required to be reported 
under this paragraph (d)(3) or in the form described in paragraph 
(d)(3)(vi) of this section and its accompanying instructions.
    (iii) Accounts held by U.S. owned foreign entities. With respect to 
each U.S. account described in paragraph (d)(3)(i) of this section that 
is held by an NFFE that is a U.S. owned foreign entity, a participating 
FFI is required to report under this paragraph (d)(3)(iii)--
    (A) The name of the U.S. owned foreign entity that is the account 
holder;
    (B) The name, address, and TIN of each substantial U.S. owner of 
such entity;
    (C) The account number;
    (D) The account balance or value of the account held by the NFFE;
    (E) The payments made with respect to the account, as described in 
paragraph (d)(4)(iv) of this section, during the calendar year; and
    (F) Such other information as is otherwise required to be reported 
under this paragraph (d)(3) or in the form described in paragraph 
(d)(3)(vi) of this section and its accompanying instructions.
    (iv) Special reporting of accounts held by owner-documented FFIs. 
With respect to each account held by an owner-documented FFI, a 
participating FFI is required to report under this paragraph 
(d)(3)(iv)--
    (A) The name of the owner-documented FFI;
    (B) The name, address, and TIN of each specified U.S. person 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1);
    (C) The account number of the account held by the owner-documented 
FFI;
    (D) The account balance or value of the account held by the U.S. 
owned foreign entity;
    (E) The payments made with respect to the account held by the 
owner-documented FFI, as described in paragraph (d)(4)(iv) of this 
section, during the calendar year; and
    (F) Such other information as is otherwise required to be reported 
under this paragraph (d)(3) or in the form described in paragraph 
(d)(3)(vi) of this section and its accompanying instructions.
    (v) Branch reporting. Except in the case of a branch that reports 
separately under paragraph (d)(2)(ii)(E) of this section, a 
participating FFI that reports the information described in paragraphs 
(d)(3)(ii) through (iv) of this section shall also report the 
jurisdiction of the branch that maintains the account being reported in 
accordance with instructions to the form provided for purposes of such 
reporting.
    (vi) Form for reporting accounts under section 1471(c)(1). The 
information described in paragraphs (d)(3)(ii) through (iv) of this 
section shall be reported on Form 8966, ``FATCA Report,'' (or such 
other form as the IRS may prescribe) with respect to each account 
subject to reporting under paragraph (d)(3)(i) of this section 
maintained at any time during the calendar year. This form shall be 
filed in accordance with its requirements and its accompanying 
instructions.
    (vii) Time and manner of filing. Except as provided in paragraph 
(d)(7)(iv)(B) of this section, Form 8966 shall be filed electronically 
with the IRS on or before March 31 of the year following the end of the 
calendar year to which the form relates. See the accompanying 
instructions to this form for electronic filing instructions.
    (viii) Extensions in filing. The IRS shall grant an automatic 90-
day extension of time in which to file Form 8966. Form 8809, ``Request 
for Extension of Time to File Information Returns,'' (or such other 
form as the IRS may prescribe) must be used to request such extension 
of time and must be filed no later than the due date of Form 8966. 
Under certain hardship conditions, the IRS may grant an additional 90-
day extension. A request for extension due to hardship must contain a 
statement of the reasons for requesting the extension and such other 
information as the forms or instructions may require.
    (4) Descriptions applicable to reporting requirements of Sec.  
1.1471-4(d)(3)--(i) Address. The address to be reported with respect to 
an account held by a specified U.S. person is the residence address 
recorded by the participating FFI for the account holder or, if no 
residence address is associated with the account holder, the address 
for the account used for mailing or for other purposes by the 
participating FFI. In the case of an account held by a U.S. owned 
foreign entity, the address to be reported is the address of each 
substantial U.S. owner of such entity. In the case of an account held 
by an owner-documented FFI, the address to be reported is the address 
of each specified U.S. person identified in Sec.  1.1471-
3(d)(6)(iv)(A)(1).

[[Page 5953]]

    (ii) Account number. The account number to be reported with respect 
to an account is the identifying number assigned by the participating 
FFI for purposes other than to satisfy the reporting requirements of 
this paragraph (d), or, if no such number is assigned to the account, a 
unique serial number or other number such participating FFI assigns to 
the financial account for purposes of reporting under paragraph (d)(3) 
of this section that distinguishes the account from other accounts 
maintained by such institution.
    (iii) Account balance or value--(A) In general. The participating 
FFI shall report the average balance or value of the account if the FFI 
reports average balance or value to the account holder for a calendar 
year. If the participating FFI does not report the average balance or 
value of the account to the account holder, the participating FFI shall 
report the balance or value of the account as of the end of the 
calendar year as determined in accordance with Sec.  1.1471-5(b)(4). In 
the case of an account that is a cash value insurance or annuity 
contract, a participating FFI shall report the balance or value of the 
account as determined in accordance with Sec.  1.1471-5(b)(4).
    (B) Currency translation of account balance or value. The account 
balance or value of an account may be reported in U.S. dollars or in 
the currency in which the account is denominated. In the case of an 
account denominated in one or more foreign currencies, the 
participating FFI may elect to report the account balance or value in a 
currency in which the account is denominated and is required to 
identify the currency in which the account is reported. If the 
participating FFI elects to report such an account in U.S. dollars, the 
participating FFI must calculate the account balance or value of the 
account in the manner described in Sec.  1.1471-5(b)(4).
    (iv) Payments made with respect to an account--(A) Depository 
accounts. The payments made during a calendar year with respect to a 
depository account consist of the aggregate gross amount of interest 
paid or credited to the account during the year.
    (B) Custodial accounts. The payments made during a calendar year 
with respect to a custodial account consist of--
    (1) The aggregate gross amount of dividends paid or credited to the 
account during the calendar year;
    (2) The aggregate gross amount of interest paid or credited to the 
account during the calendar year;
    (3) The gross proceeds from the sale or redemption of property paid 
or credited to the account during the calendar year with respect to 
which the FFI acted as a custodian, broker, nominee, or otherwise as an 
agent for the account holder; and
    (4) The aggregate gross amount of all other income paid or credited 
to the account during the calendar year.
    (C) Other accounts. In the case of an account described in Sec.  
1.1471-5(b)(1)(iii) (relating to debt or equity interests) or (iv) 
(relating to cash value insurance contracts and annuity contracts), the 
payments made during the calendar year with respect to such account are 
the gross amounts paid or credited to the account holder during the 
calendar year including payments in redemption (in whole or part) of 
the account.
    (D) Transfers and closings of deposit, custodial, insurance, and 
annuity financial accounts. In the case of an account closed or 
transferred in its entirety by an account holder during a calendar year 
that is a depository account, custodial account, or a cash value 
insurance contract or annuity contract, the payments made with respect 
to the account shall be--
    (1) The payments and income paid or credited to the account that 
are described in paragraph (d)(4)(iv)(A) or (B) of this section for the 
calendar year until the date of transfer or closure; and
    (2) The amount or value withdrawn or transferred from the account 
in connection with the closure or transfer of the account.
    (E) Amount and character of payments subject to reporting. For 
purposes of reporting under paragraph (d)(3) of this section, the 
amount and character of payments made with respect to an account may be 
determined under the same principles that the participating FFI uses to 
report information on its resident account holders to the tax 
administration of the jurisdiction in which the FFI (or branch thereof) 
is located. Thus, the amount and character of items of income described 
in paragraphs (d)(4)(iv)(A), (B), and (C) need not be determined in 
accordance with U.S. federal income tax principles. If any of the types 
of payments described in paragraph (d)(4)(iv) of this section are not 
reported to the tax administration of the jurisdiction in which the 
participating FFI (or branch thereof) is located, such amounts may be 
determined in the same manner as is used by the participating FFI for 
purposes of reporting to the account holder. If any of the types of 
payments described in this paragraph (d)(4)(iv) is neither reported to 
the tax administration of the jurisdiction in which the FFI (or branch 
thereof) is located nor reported to the account holder for the year for 
which reporting is required under paragraph (d) of this section, such 
item must be determined and reported either in accordance with U.S. 
federal tax principles or in accordance with any reasonable method of 
reporting that is consistent with the accounting principles generally 
applied by the participating FFI. Once a participating FFI (or branch 
thereof) has applied a method to determine such amounts, it must apply 
such method consistently for all account holders and for all subsequent 
years unless the Commissioner consents to a change in such method. 
Consent will be automatically granted for a change to rely on U.S. 
federal income tax principles to determine such amounts.
    (F) Currency translation. A payment described in this paragraph 
(d)(4)(iv) may be reported in the currency in which the payment is 
denominated or in U.S. dollars. In the case of payments denominated in 
one or more foreign currencies, a participating FFI may elect to report 
the payments in a currency in which payments are denominated and is 
required to identify the currency in which the account is reported. If 
such a payment is reported in U.S. dollars, the participating FFI must 
calculate the amount in the manner described in Sec.  1.1471-5(b)(4).
    (v) Record retention requirements. A participating FFI that 
produces, in the ordinary course of its business, account statements 
that summarize the activity (including withdrawals, transfers, and 
closures) of an account for any calendar year in which the account was 
required to be reported under paragraph (d)(3) of this section must 
retain a record of such account statements. The record must be retained 
for the longer of six years or the retention period under the FFI's 
normal business procedures. A participating FFI may be required to 
extend the six year retention period if the IRS requests such an 
extension prior to the expiration of the six year period.
    (5) Election to perform chapter 61 reporting--(i) In general--(A) 
Election under section 1471(c)(2). Except as otherwise provided in this 
paragraph (d)(5), a participating FFI may elect under section 
1471(c)(2) and this paragraph (d)(5) to report under sections 6041, 
6042, 6045, and 6049, as appropriate, with respect to any account 
required to be reported under this paragraph (d). Such reporting must 
be done as if such participating FFI were a U.S. payor and each holder 
of an account that is a specified U.S. person, U.S. owned foreign 
entity, or owner-documented FFI were a payee who is an individual and 
citizen of the United States. If a participating FFI makes such

[[Page 5954]]

an election, the FFI is required to report the information required 
under this paragraph (d)(5) with respect to each such U.S. account or 
account held by an owner-documented FFI, regardless of whether the 
account holder of such account qualifies as a recipient exempt from 
reporting by a payor or middleman under sections 6041, 6042, 6045, or 
6049, including the reporting of payments made to such account of 
amounts that are subject to reporting under any of these sections. A 
participating FFI that elects to report an account under the election 
described in this paragraph (d)(5) is required to report the 
information described in paragraph (d)(5)(ii) or (iii) of this section 
for a calendar year regardless of whether a reportable payment was made 
to the U.S. account during the calendar year. A participating FFI that 
reports an account under the election described in this paragraph 
(d)(5) is not required to report the information described in paragraph 
(d)(3) of this section with respect to the account. The election under 
section 1471(c)(2) described in this paragraph (d)(5)(i)(A) does not 
apply to cash value insurance contracts or annuity contracts that are 
financial accounts described in Sec.  1.1471-5(b)(1)(iv). See paragraph 
(d)(5)(i)(B) of this section for an election to report cash value 
insurance contracts or annuity contracts that are U.S. accounts held by 
specified U.S. persons in a manner similar to section 6047(d).
    (B) Election to report in a manner similar to section 6047(d). 
Except as otherwise provided in this paragraph (d)(5), a participating 
FFI may elect to report with respect to any of its cash value insurance 
contracts or annuity contracts that are U.S. accounts held by specified 
U.S. persons under section 6047(d), modified as follows. The amount to 
be reported is the sum of the account balance or value (as of the 
calendar year end or the most recent contract anniversary date) and any 
amount paid under the contract during such reporting period as if such 
participating FFI were a U.S. payor. Each holder of a U.S. account that 
is a specified U.S. person is treated for purposes of reporting under 
this paragraph (d)(5)(i)(B) as a contract holder or payee who is an 
individual and citizen of the United States.
    (ii) Additional information to be reported. In addition to the 
information otherwise required to be reported under sections 6041, 
6042, 6045, 6047(d) (in the manner described in paragraph (d)(5)(i)(B) 
of this section with respect to U.S. accounts held by specified U.S. 
persons), and 6049, including the reporting of payments made to such 
accounts subject to reporting under the applicable section, a 
participating FFI that elects to report under this paragraph (d)(5)(ii) 
must report with respect to each account that it is required to treat 
as a U.S. account--
    (A) In the case of an account holder that is a specified U.S. 
person--
    (1) The name, address, and TIN of the account holder; and
    (2) The account number; and
    (B) In the case of an account holder that is a U.S. owned foreign 
entity that is an NFFE--
    (1) The name of such entity;
    (2) The name, address, and TIN of each substantial U.S. owner of 
such entity; and
    (3) The account number.
    (iii) Special reporting of accounts held by owner-documented FFIs. 
With respect to each account held by an owner-documented FFI, a 
participating FFI that elects to report under this paragraph (d)(5) 
must report payments made to the owner-documented FFI under the 
requirements of sections 6041, 6042, 6045, 6047(d), and 6049, the other 
information required under each applicable section, and the following 
information--
    (A) The name of such FFI;
    (B) The name, address, and TIN of each specified U.S. person 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1); and
    (C) The account number for the account held by the owner-documented 
FFI.
    (iv) Branch reporting. A participating FFI that reports the 
information described in paragraphs (d)(5)(ii) and (iii) of this 
section shall also report the jurisdiction of the branch that maintains 
the account being reported.
    (v) Time and manner of making the election. A participating FFI (or 
one or more branches of the participating FFI) may make the election 
described in this paragraph (d)(5) by reporting the information 
described in this paragraph (d)(5) on the form described in paragraph 
(d)(5)(vii) of this section on the next reporting date following the 
calendar year for which the election is made.
    (vi) Revocation of election. A participating FFI may revoke the 
election described in paragraph (d)(5)(i) (as a whole or with regard to 
any of its accounts) by reporting the information described in 
paragraph (d)(3) on the next reporting date following the calendar year 
for which the election is revoked.
    (vii) Filing of information under election. In the case of an 
account holder that is a specified U.S. person, the information 
required to be reported under the election described in this paragraph 
(d)(5) shall be filed with the IRS and issued to the account holder in 
the time and manner prescribed in sections 6041, 6042, 6045, 6047(d), 
and 6049 and in accordance with the forms referenced therein and their 
accompanying instructions provided by the IRS for reporting under each 
of these sections. If the account holder is an NFFE that is a U.S. 
owned foreign entity or owner-documented FFI, however, the information 
required to be reported under the election described in this paragraph 
(d)(5) shall be filed on Form 8966 in accordance with its requirements 
and its accompanying instructions.
    (6) Reporting on recalcitrant account holders--(i) In general. 
Except as otherwise provided in a Model 2 IGA, a participating FFI, as 
part of its reporting responsibilities under this paragraph (d), shall 
report to the IRS for each calendar year the information described for 
each of the classes of account holders described in paragraphs 
(d)(6)(A) through (E) of this section. See Sec.  1.1474-1(d)(4)(ii) for 
a participating FFI or registered deemed-compliant FFI's requirement to 
report chapter 4 reportable amounts paid to such account holders and 
tax withheld.
    (A) The aggregate number and aggregate balance or value of accounts 
held by recalcitrant account holders at the end of the calendar year 
that are described in Sec.  1.1471-5(g)(2)(iv) (referencing passive 
NFFEs that are recalcitrant account holders).
    (B) The aggregate number and aggregate balance or value of accounts 
held by recalcitrant account holders at the end of the calendar year 
that are described in Sec.  1.1471-5(g)(2)(ii) and (iii) (referencing 
U.S. persons that are recalcitrant account holders).
    (C) The aggregate number and aggregate balance or value of accounts 
held by recalcitrant account holders at the end of the calendar year, 
other than accounts described in paragraph (d)(6)(i)(A), (B), or (E) of 
this section, that have U.S. indicia.
    (D) The aggregate number and aggregate balance or value of accounts 
held by recalcitrant account holders at the end of the calendar year, 
other than accounts described in paragraph (d)(6)(i)(A) or (E) of this 
section, that do not have U.S. indicia.
    (E) The aggregate number and aggregate balance or value of accounts 
held by recalcitrant account holders at the end of the calendar year 
that are dormant accounts.
    (ii) Definition of dormant account. A dormant account is an account 
(other than a cash value insurance contract or annuity contract) that 
is a dormant or

[[Page 5955]]

inactive account under applicable laws or regulations or the normal 
operating procedures of the participating FFI that are consistently 
applied for all accounts maintained by such institution in a particular 
jurisdiction. If neither applicable laws or regulations nor the normal 
operating procedures of the participating FFI maintaining the account 
address dormant or inactive accounts, an account will be a dormant 
account if--
    (A) The account holder has not initiated a transaction with regard 
to the account or any other account held by the account holder with the 
FFI in the past three years; and
    (B) The account holder has not communicated with the FFI that 
maintains such account regarding the account or any other account held 
by the account holder with the FFI in the past six years.
    (iii) End of dormancy. An account that is a dormant account under 
paragraph (d)(6)(ii) of this section ceases to be a dormant account 
when--
    (A) The account holder initiates a transaction with regard to the 
account or any other account held by the account holder with the FFI;
    (B) The account holder communicates with the FFI that maintains 
such account regarding the account or any other account held by the 
account holder with the FFI; or
    (C) The account ceases to be a dormant account under applicable 
laws or regulations or the participating FFI's normal operating 
procedures.
    (iv) Forms. Reporting under paragraph (d)(6)(i) of this section 
shall be filed on Form 8966 in accordance with its requirements and 
accompanying instructions.
    (v) Time and manner of filing. Except as provided in paragraph 
(d)(7)(iv)(B) of this section, Form 8966 shall be filed electronically 
with the IRS on or before March 31 of the year following the end of the 
calendar year to which the form relates. See the accompanying 
instructions to this form for electronic filing instructions.
    (vi) Record retention requirements. A participating FFI that 
produces, in the ordinary course of its business, account statements 
that summarize the activity (including withdrawals, transfers, and 
closures) of an account held by a recalcitrant account holder described 
in paragraph (d)(6)(i)(B) of this section for any calendar year in 
which the account was required to be reported under paragraph (d)(6) of 
this section must retain a record of such account statements. Such 
record must be retained for the longer of six years or the retention 
period under the FFI's normal business procedures. A participating FFI 
may be required to extend the six year retention period if the IRS 
requests such an extension prior to the expiration of the six year 
period.
    (7) Special reporting rules with respect to the 2013 through 2015 
calendar years--(i) In general. If the effective date of the FFI 
agreement of a participating FFI is on or before December 31, 2014, the 
participating FFI is required to report U.S. accounts and accounts held 
by owner-documented FFIs that it maintained (or that is otherwise 
required to report under paragraph (d)(2)(ii) of this section) during 
the 2013, 2014, and 2015 calendar years in accordance with paragraph 
(d)(7)(ii) or (iii) of this section.
    (ii) Participating FFIs that report under Sec.  1.1471-4(d)(3). 
With respect to accounts that a participating FFI is required to report 
in accordance with paragraph (d)(2) of this section, the participating 
FFI may, instead of the information described in paragraphs (d)(3)(ii) 
and (iii) of this section, report only the following information--
    (A) Reporting with respect to the 2013 and 2014 calendar years. 
With respect to accounts maintained during the 2013 and 2014 calendar 
years--
    (1) The name, address, and TIN of each specified U.S. person who is 
an account holder and, in the case of any account holder that is an 
NFFE that is a U.S. owned foreign entity or that is an owner-documented 
FFI, the name of such entity and the name, address, and TIN of each 
substantial U.S. owner of such NFFE or, in the case of an owner-
documented FFI, of each specified U.S. person identified in Sec.  
1.1471-3(d)(6)(iv)(A)(1);
    (2) The account balance or value as of the end of the relevant 
calendar year, or if the account was closed after the effective date of 
the FFI agreement, the amount or value withdrawn or transferred from 
the account in connection with closure; and
    (3) The account number of the account.
    (B) Reporting with respect to the 2015 calendar year. With respect 
to the 2015 calendar year, the participating FFI may report only--
    (1) The information described in paragraph (d)(7)(ii)(A) of this 
section; and
    (2) The payments made with respect to the account except for those 
payments described in paragraph (d)(4)(iv)(B)(3) of this section 
(certain gross proceeds).
    (iii) Participating FFIs that report under Sec.  1.1471-4(d)(5). A 
participating FFI that elects to report under paragraph (d)(5) of this 
section may report only the information described in paragraphs 
(d)(7)(ii)(A)(1) and (3) of this section for its 2013 and 2014 calendar 
years. With respect to its 2015 calendar year, a participating FFI is 
required to report all of the information required to be reported under 
paragraphs (d)(5)(i) through (iii) of this section but may exclude from 
such reporting amounts reportable under section 6045.
    (iv) Forms for reporting--(A) In general. Except as provided in 
paragraph (d)(7)(iv)(B) of this section, reporting under paragraph 
(d)(7)(ii) of this section shall be made on Form 8966 (or such other 
form as the IRS may prescribe), in the manner described in paragraph 
(d)(3)(vii) of this section. Reporting under paragraph (d)(7)(iii) of 
this section shall be made in accordance with paragraph (d)(5)(vii) of 
this section.
    (B) Special determination date and timing for reporting with 
respect to the 2013 calendar year. With respect to the 2013 calendar 
year, a participating FFI must report under paragraph (d)(3) or (5) of 
this section on all accounts that are identified and documented under 
paragraph (c) of this section as U.S. accounts or accounts held by 
owner-documented FFIs as of December 31, 2014, (or as of the date an 
account is closed if the account is closed prior to December 31, 2014) 
if such account was outstanding on December 31, 2013. Reporting for 
both the 2013 and 2014 calendar year shall be filed with the IRS on or 
before March 31, 2015. However, a U.S. payor (including a U.S. branch 
of a participating FFI or registered deemed-compliant FFI that is 
treated as a U.S. person) that reports in accordance with paragraph 
(d)(2)(iii) of this section may report all or a portion of its U.S. 
accounts and accounts held by owner-documented FFIs in accordance with 
the dates otherwise applicable to reporting under chapter 61 with 
respect to the 2013 calendar year.
    (8) Reporting requirements of QIs, WPs and WTs. See the QI, WP, or 
WT agreement for the reporting requirements of a participating FFI that 
is a QI, WP, or WT with respect to U.S. accounts that it maintains.
    (9) Examples. The following examples illustrate the provisions of 
this paragraph (d):

    Example 1. Financial institution required to report U.S. 
account. PFFI1, a participating FFI, issues shares of stock that are 
financial accounts under Sec.  1.1471-5(b). Such shares are held in 
custody by PFFI2, another participating FFI, on behalf of U, a 
specified U.S. person that holds an account with PFFI2. The shares 
of PFFI1 held by PFFI2 will not be subject to reporting by PFFI1 if 
PFFI1 may treat PFFI2 as a participating FFI

[[Page 5956]]

under Sec.  1.1471-3(d)(3). See paragraph (d)(2)(ii)(A) of this 
section.
    Example 2. Financial institution required to report U.S. 
account. U, a specified U.S. person, holds shares in PFFI1, a 
participating FFI that invests in other financial institutions (a 
fund of funds). The shares of PFFI1 are financial accounts under 
Sec.  1.1471-5(b)(3)(iii). PFFI1 holds shares that are also 
financial accounts under Sec.  1.1471-5(b)(3)(iii) in PFFI2, another 
participating FFI. The shares of PFFI2 held by PFFI1 are not subject 
to reporting by PFFI2, if PFFI2 may treat PFFI1 as a participating 
FFI under Sec.  1.1471-3(d)(3). See paragraph (d)(2)(ii)(A) of this 
section.
    Example 3. U.S. owned foreign entity. FC, a passive NFFE, holds 
a custodial account with PFFI1, a participating FFI. U, a specified 
U.S. person, owns 3% of the only class of stock of FC. Q, another 
specified U.S. person, owns 12% of the only class of stock of FC. U 
is not a substantial U.S. owner of FC. See Sec.  1.1473-1(b). Q is a 
substantial U.S. owner of FC and FC identifies her as such to PFFI1. 
PFFI1 does not elect to report under paragraph (d)(5) of this 
section. PFFI1 must complete and file the reporting form described 
in paragraph (d)(3)(vi) of this section and report the information 
described in paragraph (d)(3)(iii) with respect to both FC and Q. 
See paragraph (d)(3)(ii) of this section.
    Example 4. Election to perform Form 1099 reporting with regard 
to an NFFE. Same facts as in Example 3, except that PFFI1 has made 
the election in accordance with paragraph (d)(5) of this section. 
PFFI1 must complete and file the forms described in paragraph 
(d)(5)(vii) for FC, treating FC as if it were an individual and 
citizen of the United States and must identify Q as a substantial 
U.S. owner of FC on such form. See paragraph (d)(5)(ii) of this 
section. PFFI1 shall not complete the forms described in paragraph 
(d)(5)(vii) with regard to U.
    Example 5. Owner-documented FFI. DC, an owner-documented FFI 
under Sec.  1.1471-3(d)(6), holds a custodial account with PFFI1, a 
participating FFI. U, a specified U.S. person, owns 3% of the only 
class of stock of DC. Q, another specified U.S. person, owns 12% of 
the only class of stock of DC. Both U and Q are persons identified 
in Sec.  1.1471-3(d)(6)(iv)(A)(1) and DC identifies U and Q to PFFI1 
and otherwise provides to PFFI1 all of the information required to 
be reported with respect to DC. PFFI1 must complete and file a form 
described in paragraph (d)(3)(vi) of this section with regard to U 
and Q. See paragraph (d)(3)(iii) of this section.
    Example 6. Election to perform Form 1099 reporting with regard 
to an owner-documented FFI. Same facts as in Example 5, except that 
PFFI1 has made the election in accordance with paragraph (d)(5) of 
this section. PFFI1 must complete and file the forms described in 
paragraph (d)(5)(vii) for U and Q.
    Example 7. Sponsored FFI. DC2 is an FFI that has agreed to have 
a sponsoring entity, PFFI1, fulfill DC2's chapter 4 responsibilities 
under Sec.  1.1471-5(f)(2)(iii). U, a specified U.S. person, holds 
an equity interest in DC2 that is a financial account under Sec.  
1.1471-5(b)(3)(iii). PFFI1 must complete and file a form described 
in paragraph (d)(3)(vi) of this section with regard to U's account 
on behalf of DC2. See paragraph (d)(2)(ii)(C) of this section.

    (e) Expanded affiliated group requirements--(1) In general. Except 
as otherwise provided in this paragraph (e)(1) or paragraphs (e)(2) and 
(e)(3) of this section, each FFI that is a member of an expanded 
affiliated group must have the chapter 4 status of a participating FFI 
or registered deemed-compliant FFI as a condition for any member of 
such group to obtain the status of a participating FFI or registered 
deemed-compliant FFI. Accordingly, except as otherwise provided in 
published guidance, each FFI in an expanded affiliated group must 
submit a registration form to the IRS in such manner as the IRS may 
prescribe requesting an FFI agreement, registered deemed-compliant 
status, or limited FFI status as a condition for any member to become a 
participating FFI or registered deemed-compliant FFI. Except as 
provided in paragraph (e)(2) of this section, each FFI that is a member 
of such group must also agree to all of the requirements for the status 
for which it applies with respect to all accounts maintained at all of 
its branches, offices, and divisions. For the withholding requirements 
of a participating FFI with respect to limited branches and affiliates 
that are limited FFIs, see paragraph (b)(5) of this section. 
Notwithstanding the foregoing, an FFI (or branch thereof) that is 
treated as a participating FFI or a deemed-compliant FFI pursuant to a 
Model 1 IGA or Model 2 IGA will maintain such status provided that it 
meets the terms for such status pursuant to such agreement.
    (2) Limited branches--(i) In general. An FFI that otherwise 
satisfies the requirements for participating FFI status as described in 
this section will be allowed to become a participating FFI 
notwithstanding that one or more of its branches cannot satisfy all of 
the requirements of a participating FFI as described in this section 
if--
    (A) All branches (as defined in paragraph (e)(2)(ii) of this 
section) that cannot satisfy all of the requirements of a participating 
FFI as described in this section are limited branches as described in 
paragraph (e)(2)(iii) of this section;
    (B) The FFI maintains at least one branch that complies with all of 
the requirements of a participating FFI, even if the only branch that 
can comply is a U.S. branch; and
    (C) The FFI agrees to and complies with the conditions in paragraph 
(e)(2)(iv) of this section.
    (ii) Branch defined. For purposes of this section, a branch is a 
unit, business, or office of an FFI that is treated as a branch under 
the regulatory regime of a country or is otherwise regulated under the 
laws of such country as separate from other offices, units, or branches 
of the FFI and that maintains books and records separate from the books 
and records of other branches of the FFI. For purposes of this section, 
a branch includes units, businesses, and offices of an FFI located in 
the country in which the FFI is created or organized. All units, 
businesses, or offices of a participating FFI in a single country shall 
be treated as a single branch for purposes of this paragraph (e)(2). An 
account will be treated as maintained by a branch for purposes of this 
paragraph (e)(2) if the rights and obligations of the account holder 
and the participating FFI with regard to such account (including any 
assets held in the account) are governed by the laws of the country of 
the branch.
    (iii) Limited branch defined. A limited branch is a branch of an 
FFI that, under the laws of the jurisdiction as of February 15, 2012, 
and that apply with respect to the accounts maintained by the branch, 
cannot satisfy the conditions of both paragraphs (e)(2)(iii)(A) and (B) 
of this section, but with respect to which the FFI will agree to the 
conditions of paragraph (e)(2)(iv) of this section.
    (A) With respect to accounts that pursuant to this section the 
participating FFI is required to treat as U.S. accounts, either report 
such accounts to the IRS as described in paragraph (d) of this section, 
close such accounts within a reasonable period of time, or transfer 
such accounts to a U.S. financial institution, a branch of the FFI that 
will so report, a participating FFI, or a reporting Model 1 FFI.
    (B) With respect to recalcitrant account holders and accounts held 
by nonparticipating FFIs, withhold with respect to each such account as 
required under paragraph (b) of this section, block each such account 
(as defined in this paragraph), close each such account within a 
reasonable period of time, or transfer each such account to a U.S. 
financial institution, a branch of the FFI that will so report, a 
participating FFI, or a reporting Model 1 FFI. For purposes of this 
paragraph (e)(2)(iii)(B), an account is a blocked account if the FFI 
prohibits the account holder from effecting any transactions with 
respect to an account until such time as the account is closed, 
transferred, or the account holder provides the documentation described 
in paragraph (c) of this section for the FFI to determine the U.S. or 
non-U.S. status of the account and report the account if

[[Page 5957]]

required under paragraph (d) of this section.
    (iv) Conditions for limited branch status. An FFI with one or more 
limited branches must satisfy the following requirements when applying 
for participating FFI status with the IRS--
    (A) Identify the relevant jurisdiction of each branch for which it 
seeks limited branch status;
    (B) Agree that each such branch will identify its account holders 
under the due diligence requirements applicable to participating FFIs 
under paragraph (c) of this section, retain account holder 
documentation pertaining to those identification requirements for six 
years from the effective date of the FFI agreement, and report to the 
IRS with respect to accounts that it is required to treat as U.S. 
accounts to the extent permitted under the relevant laws pertaining to 
the branch;
    (C) Agree to treat each such branch as an entity separate from its 
other branches for purposes of the withholding requirements described 
in paragraph (b)(5) of this section;
    (D) Agree that each such branch will not open accounts that it is 
required to treat as U.S. accounts or accounts held by nonparticipating 
FFIs, including accounts transferred from any branch of the FFI or from 
any member of its expanded affiliated group; and
    (E) Agree that each limited branch will identify itself to 
withholding agents as a nonparticipating FFI (including to affiliates 
of the FFI in the same expanded affiliated group that are withholding 
agents).
    (v) Term of limited branch status (transitional). An FFI that 
becomes a participating FFI with one or more limited branches will 
cease to be a participating FFI after December 31, 2015, unless 
otherwise provided pursuant to Model 1 IGA or Model 2 IGA. A branch 
will cease to be a limited branch as of the beginning of the third 
calendar quarter following the date on which the branch is no longer 
prohibited from complying with the requirements of a participating FFI 
as described in this section. In such case, a participating FFI will 
retain its status as a participating FFI if it notifies the IRS by the 
date such branch ceases to be a limited branch that it will comply with 
the requirements of an FFI agreement with respect to such branch, or if 
otherwise provided pursuant to a Model 1 IGA or Model 2 IGA.
    (3) Limited FFI--(i) In general. An FFI will be allowed to become 
either a participating FFI or a registered deemed-compliant FFI 
notwithstanding that one or more of the FFIs in the expanded affiliated 
group of which the FFI is a member cannot comply with all of the 
requirements of a participating FFI as described in this section if 
each such FFI is a limited FFI under paragraph (e)(3)(ii) of this 
section.
    (ii) Limited FFI defined. A limited FFI is a member of an expanded 
affiliated group that includes one or more participating FFIs that 
agrees to the conditions described in paragraph (e)(3)(iii) of this 
section to become a limited FFI and if under the laws of each 
jurisdiction that apply with respect to the accounts maintained by the 
affiliate, the affiliate cannot satisfy the conditions of both 
paragraphs (e)(3)(ii)(A) and (B) of this section.
    (A) With respect to accounts that are U.S. accounts, report such 
accounts to the IRS as described in paragraph (d) of this section, 
close such accounts within a reasonable period of time, or transfer 
such accounts to a U.S. financial institution, a participating FFI, or 
a reporting Model 1 FFI.
    (B) With respect to recalcitrant account holders and accounts held 
by nonparticipating FFIs, withhold with respect to each such account as 
required under paragraph (b) of this section, block each such account, 
close each such account within a reasonable period of time, or transfer 
each such account to a U.S. financial institution, a participating FFI, 
or a reporting Model 1 FFI. See paragraph (e)(2)(ii)(B) of this section 
for when an account is considered blocked.
    (iii) Conditions for limited FFI status. An FFI that seeks to 
become a limited FFI must--
    (A) Register as part of its expanded affiliated group's FFI 
agreement process for limited FFI status;
    (B) Agree as part of such registration to identify its account 
holders under the due diligence requirements applicable to 
participating FFIs under paragraph (c) of this section, retain account 
holder documentation pertaining to those identification requirements 
for six years from the effective date of its registration as a limited 
FFI, and report with respect to accounts that it is required to treat 
as U.S. accounts to the extent permitted under the relevant laws 
pertaining to the FFI;
    (C) Agree as part of such registration that it will not open 
accounts that it is required to treat as U.S. accounts or accounts held 
by nonparticipating FFIs, including accounts transferred from any 
member of its expanded affiliated group; and
    (D) Agree as part of such registration that it will identify itself 
to withholding agents as a nonparticipating FFI.
    (iv) Period for limited FFI status (transitional). A limited FFI 
will cease to be a limited FFI after December 31, 2015. An FFI will 
also cease to be a limited FFI when it becomes a participating FFI or 
deemed-compliant FFI, or as of the beginning of the third calendar 
quarter following the date on which the FFI is no longer prohibited 
from complying with the requirements of a participating FFI as 
described in this section. In such case, participating FFIs and deemed-
compliant FFIs that are members of the same expanded affiliated group 
will retain their status if, by the date that an FFI ceases to be a 
limited FFI, such FFI enters into an FFI agreement or becomes a 
registered deemed-compliant FFI, unless otherwise provided pursuant to 
an applicable Model 1 IGA or Model 2 IGA.
    (4) Special rule for QIs. An FFI that has in effect a QI agreement 
with the IRS will be allowed to become a limited FFI notwithstanding 
that none of the FFIs in the expanded affiliated group of which the FFI 
is a member can comply with the requirements of a participating FFI as 
described in this section if the FFI that is a QI meets the conditions 
of a limited FFI under paragraph (e)(3)(ii) of this section.
    (f) Verification--(1) In general. This paragraph (f) describes the 
requirement for a participating FFI to establish and implement a 
compliance program for satisfying its requirements under this section. 
Paragraph (f)(2) of this section provides the requirement for a 
participating FFI to establish a compliance program and the option for 
a group of FFIs to adopt a consolidated compliance program. Paragraph 
(f)(3) describes the periodic certification that the participating FFI 
must make to the IRS regarding the participating FFI's compliance with 
the requirements of an FFI agreement. Paragraph (f)(4) describes IRS 
information requests related to compliance with an FFI agreement.
    (2) Compliance program--(i) In general. The participating FFI must 
appoint a responsible officer to oversee the participating FFI's 
compliance with the requirements of the FFI agreement. The responsible 
officer must (either personally or through designated persons) 
establish a compliance program that includes policies, procedures, and 
processes sufficient for the participating FFI to satisfy the 
requirements of the FFI agreement. The responsible officer (or 
designee) must periodically review the sufficiency of the FFI's 
compliance program and the FFI's compliance with the requirements of an 
FFI agreement during the certification period described in paragraph 
(f)(3) of this section. The results of the periodic review must be

[[Page 5958]]

considered by the responsible officer in making the periodic 
certifications required under paragraph (f)(3) of this section.
    (ii) Consolidated compliance program--(A) In general. A 
participating FFI that is a member of an expanded affiliated group that 
includes one or more FFIs may elect to be part of a consolidated 
compliance program (and perform a consolidated periodic review) under 
the authority of a participating FFI, reporting Model 1 FFI, or U.S. 
financial institution (compliance FI) that is a member of the electing 
FFI's expanded affiliated group, regardless of whether all such members 
so elect. A sponsoring entity is required to act as the compliance FI 
for the sponsored FFI group. In addition, when an FFI elects to be part 
of a consolidated compliance program, each branch that it maintains 
(including a limited branch or a branch described in Sec.  1.1471-
5(f)(1)) must be subject to periodic review as part of such program.
    (B) Requirements of compliance FI. A participating FFI, reporting 
Model 1 FFI, or U.S. financial institution that agrees to establish and 
maintain a consolidated compliance program and perform a consolidated 
periodic review on behalf of one or more FFIs (the compliance group), 
must agree to identify itself as the compliance FI and identify each 
FFI for which it acts (an electing FFI) to the extent required by the 
IRS as part of the FFI registration process or certification 
procedures. The agreement between the compliance FI and each electing 
FFI must permit either the compliance FI or the electing FFI to 
terminate the agreement upon a finding by the IRS or by either party 
that the other party to the agreement is not fulfilling its obligations 
under the agreement or is no longer able to fulfill such obligations.
    (3) Certification of compliance--(i) In general. In addition to the 
certifications required under paragraph (c)(7) of this section, six 
months following the end of each certification period, the responsible 
officer must make the certification described in either paragraph 
(f)(3)(ii) or (iii) of this section. The first certification period 
begins on the effective date of the FFI agreement and ends at the close 
of the third full calendar year following the effective date of the FFI 
agreement. Each subsequent certification period is the three calendar 
year period following the previous certification period, unless the FFI 
agreement provides for a different period. The responsible officer must 
either certify that the participating FFI maintains effective internal 
controls or, if the participating FFI has failed to remediate any 
material failures (defined in paragraph (f)(3)(iv) of this section) as 
of the date of the certification, must make the qualified certification 
described in paragraph (f)(3)(iii) of this section.
    (ii) Certification of effective internal controls. The responsible 
officer must certify to the following statements--
    (A) The responsible officer (or designee) has established a 
compliance program that is in effect as of the date of the 
certification and that has been subjected to the review as described in 
paragraph (f)(2)(i) of this section;
    (B) With respect to material failures--
    (1) There are no material failures for the certification period; or
    (2) If there are any material failures, appropriate actions were 
taken to remediate such failures and to prevent such failures from 
reoccurring; and
    (C) With respect to any failure to withhold, deposit, or report to 
the extent required under the FFI agreement, the FFI has corrected such 
failure by paying any taxes due (including interest and penalties) and 
filing the appropriate return (or amended return).
    (iii) Qualified certification. If the responsible officer has 
identified an event of default or a material failure that the 
participating FFI has not corrected as of the date of the 
certification, the responsible officer must certify to the following 
statements--
    (A) With respect to the event of default or material failure--
    (1) The responsible officer (or designee) has identified an event 
of default as defined in paragraph (g)(1) of this section; or
    (2) The responsible officer has determined that as of the date of 
the certification, there are one or more material failures with respect 
to the participating FFI's compliance with the FFI agreement and that 
appropriate actions will be taken to prevent such failures from 
reoccurring;
    (B) With respect to any failure to withhold, deposit, or report to 
the extent required under the FFI agreement, the FFI will correct such 
failure by paying any taxes due (including interest and penalties) and 
filing the appropriate return (or amended return); and
    (C) The responsible officer (or designee) will respond to any 
notice of default (if applicable) or will provide to the IRS, to the 
extent requested, a description of each material failure and a written 
plan to correct each such failure.
    (iv) Material failures defined. A material failure is a failure of 
the participating FFI to fulfill the requirements of the FFI agreement 
if the failure was the result of a deliberate action on the part of one 
or more employees of the participating FFI (its agent, sponsor, or 
compliance FI) to avoid the requirements of the FFI agreement or was an 
error attributable to a failure of the participating FFI to implement 
internal controls sufficient for the participating FFI to meet the 
requirements of this section. A material failure will not constitute an 
event of default unless such material failure occurs in more than 
limited circumstances when a participating FFI has not substantially 
complied with the requirements of an FFI agreement. Material failures 
include the following--
    (A) The deliberate or systemic failure of the participating FFI to 
report accounts that it was required to treat as U.S. accounts, 
withhold on passthru payments to the extent required, deposit taxes 
withheld, or accurately report recalcitrant account holders or payees 
that are nonparticipating FFIs as required;
    (B) A criminal or civil penalty or sanction imposed on the 
participating FFI (or any branch or office thereof) by a regulator or 
other governmental authority or agency with oversight over the 
participating FFI's compliance with the AML due diligence procedures to 
which it (or any branch or office thereof) is subject and that is 
imposed based on a failure to properly identify account holders under 
the requirements of those procedures; and
    (C) A potential future tax liability related to the participating 
FFI's compliance (or lack thereof) with the FFI agreement for which the 
FFI establishes, for financial statement purposes, a tax reserve or 
provision.
    (4) IRS review of compliance--(i) General inquiries. The IRS, based 
upon the information reporting forms described in paragraphs (d)(3)(v), 
(d)(5)(vi), or (d)(6)(iv) of this section filed with the IRS for each 
calendar year, may request additional information with respect to the 
information reported on the forms or may request the account statements 
described in paragraph (d)(4)(v) of this section.
    (ii) Inquiries regarding substantial non-compliance. If, based on 
the information reporting forms described in paragraphs (d)(3)(v), 
(d)(5)(vi), or (d)(6)(iv) of this section filed with the IRS for each 
calendar year, the certifications made by the responsible officer 
described in paragraph (f)(3) of this section, or any other information 
related to the participating FFI's compliance with its FFI agreement, 
the IRS determines in its discretion that the

[[Page 5959]]

participating FFI may not have substantially complied with the 
requirements of an FFI agreement, the IRS may request from the 
responsible officer (or designee) information necessary to verify the 
participating FFI's compliance with the FFI agreement. The IRS may 
request, for example, a description or copy of the participating FFI's 
policies and procedures for fulfilling the requirements of the FFI 
agreement, a description of the participating FFI's procedures for 
conducting its periodic review, or a copy of any written reports 
documenting the findings of such review in order to evaluate the 
sufficiency of the participating FFI's compliance program and review of 
such program. The IRS may also request the performance of specified 
review procedures by a person (including an external auditor or third-
party consultant) that the IRS identifies as competent to perform such 
procedures given the facts and circumstances surrounding the FFI's 
potential failure to comply with the FFI agreement.
    (g) Event of default--(1) Defined. An event of default occurs if a 
participating FFI fails to perform material obligations required with 
respect to the due diligence, withholding, or reporting requirements of 
the FFI agreement or if the IRS determines that the participating FFI 
has failed to substantially comply with the requirements of the FFI 
agreement. An event of default also includes the occurrence of the 
following--
    (i) Failure to obtain, in any case in which foreign law would (but 
for a waiver) prevent the reporting of U.S. accounts required under 
paragraph (d) of this section, valid and effective waivers from holders 
of U.S. accounts or failure to otherwise close or transfer such U.S. 
accounts as required under paragraph (i) of this section;
    (ii) Failure to significantly reduce, over a period of time, the 
number of account holders or payees that the participating FFI is 
required to treat as recalcitrant account holders or nonparticipating 
FFIs;
    (iii) Failure, in any case in which foreign law prevents or 
otherwise limits withholding to the extent required under paragraph (b) 
of this section, to fulfill the requirements of paragraph (i) of this 
section;
    (iv) Failure to establish or maintain a compliance program for 
fulfilling the requirements of the FFI agreement or to perform a 
periodic review of the participating FFI's compliance;
    (v) Failure to take timely corrective actions to remedy a material 
failure described in paragraph (f)(3)(iv) of this section after making 
the qualified certification described in paragraph (f)(3)(iii) of this 
section;
    (vi) Failure to make the initial certification required under 
paragraph (c)(7) of this section or to make the periodic certification 
required under paragraph (f)(3) of this section within the specified 
time period;
    (vii) Making incorrect claims for refund under the collective 
refund procedures described in paragraph (h) of this section;
    (viii) Failure to cooperate with an IRS request for additional 
information or making any fraudulent statement or misrepresentation of 
material fact to the IRS; or
    (ix) Any transaction relating to sponsorship, promotion, or 
noncustodial distribution for or on behalf of any Local FFI, as 
described in Sec.  1.1471-5(f)(1)(i)(A), that is an investment entity.
    (2) Notice of event of default. Following an event of default known 
by or disclosed to the IRS, the IRS will deliver to the participating 
FFI a notice of default specifying the event of default. The IRS will 
request that the participating FFI remediate the event of default 
within a specified time period. The participating FFI must respond to 
the notice of default and provide information responsive to an IRS 
request for information or state the reasons why the participating FFI 
does not agree that an event of default has occurred. Taking into 
account the terms of any applicable Model 2 IGA, if the participating 
FFI does not provide a response within the specified time period, the 
IRS may, at its sole discretion, deliver a notice of termination that 
terminates the FFI's participating FFI status. A participating FFI may 
request, within a reasonable period of time, reconsideration of a 
notice of default or notice of termination by written request to the 
LB&I, Assistant Deputy Commissioner (International).
    (3) Remediation of event of default. A participating FFI will be 
permitted to remediate an event of default to the extent that it agrees 
with the IRS on a remediation plan. Such a plan may, for example, allow 
a participating FFI to remediate an event of default described in 
paragraph (g)(1)(iii) of this section by providing specific information 
regarding its U.S. accounts when the FFI has been unable to report all 
of the information with respect to such accounts as required under 
paragraph (d) of this section and has been unable to close or transfer 
such accounts. The IRS may, as part of a remediation plan, require 
additional information from the FFI or the performance of the specified 
review procedures described in paragraph (f)(4)(ii) of this section.
    (h) Collective credit or refund procedures for overpayments--(1) In 
general. Except as otherwise provided in the FFI agreement, if there 
has been an overpayment of tax with respect to an account holder or 
payee of a participating FFI or reporting Model 1 FFI resulting from 
tax withheld under chapter 4 by either the participating FFI or 
reporting Model 1 FFI or by its withholding agent during a calendar 
year and the amount withheld has not been recovered under the 
reimbursement or set-off procedures described in Sec.  1.1474-2(a) 
(applied by either the withholding agent or the participating FFI or 
reporting Model 1 FFI), the participating FFI or reporting Model 1 FFI 
may request a credit or refund from the IRS of the overpayment to the 
extent permitted under this paragraph (h) on behalf of such account 
holder or payee. For purposes of this paragraph (h), an overpayment 
means an amount withheld in excess of the account holder or payee's 
U.S. tax liability with respect to the payment (including 
overwithholding as defined Sec.  1.1474-2(a)(2)). If a participating 
FFI or reporting Model 1 FFI does not elect the procedure provided in 
this paragraph (h) to request a credit or refund, the participating FFI 
or reporting Model 1 FFI is required to (or must request that its 
withholding agent) file and furnish within a reasonable period a Form 
1042-S (or such other form as the IRS may prescribe) and Form 1042 (or 
amended forms) to report to any account holder or payee that has 
requested such form with regard to the tax withheld by the 
participating FFI or reporting Model 1 FFI or its withholding agent.
    (2) Persons for which a collective refund is not permitted. A 
participating FFI or reporting Model 1 FFI cannot include in its 
collective refund claim any payments made to an account holder or payee 
that is a nonparticipating FFI, a participating FFI or reporting Model 
1 FFI that is a flow-through entity (including a WP or WT) or that is 
acting as an intermediary (including a QI), a U.S. person, or a passive 
NFFE that is a flow-through entity with respect to taxes allocated to 
its substantial U.S. owners. A participating FFI or reporting Model 1 
FFI must follow the procedures set forth under sections 6402 and 6414 
and the regulations thereunder, as modified by this paragraph (h), to 
claim the credit or refund. No credit or refund will be allowed after 
the expiration of the statutory period of limitation for refunds under 
section 6511.

[[Page 5960]]

    (3) Payments for which a collective refund is permitted. A 
collective refund is permitted only for payments withheld upon under 
chapter 4.
    (4) Procedural and other requirements for collective refund. A 
participating FFI or reporting Model 1 FFI may use the collective 
refund procedures of this paragraph (h) under the following 
conditions--
    (i) All account holders and payees for which the participating FFI 
or reporting Model 1 FFI seeks a refund must have been included on a 
Form 1042-S in a reporting pool of nonparticipating FFIs or 
recalcitrant account holders described in Sec.  1.1474-1(d)(4)(iii) 
with respect to the payments for which refund is sought and the 
participating FFI or reporting Model 1 FFI (or the withholding agent) 
has not filed or furnished a Form 1042-S to any such account holder or 
payee with respect to which the refund is sought;
    (ii) If a refund is sought on the grounds that the account holder 
or payee of a payment that is U.S. source FDAP income subject to 
withholding under chapter 3 is entitled to a reduced rate of tax by 
reason of any treaty obligation of the United States, the participating 
FFI or reporting Model 1 FFI has also obtained valid documentation that 
meets the requirements of chapter 3 for a reduced rate of tax and such 
documentation is available to the IRS upon request with respect to each 
such account holder or payee; and
    (iii) In filing a claim for refund with the IRS under this 
paragraph (h), the participating FFI or reporting Model 1 FFI submits 
the following, together with its Form 1042 (or amended Form 1042) on 
which it provides a reconciliation of amounts withheld and claims a 
credit or refund, a schedule identifying the taxes withheld with 
respect to each account holder or payee to which the claim relates, 
and, if applicable, a copy of the Form 1042-S (or such other form as 
the IRS may prescribe) furnished to the participating FFI or reporting 
Model 1 FFI by its withholding agent reporting the taxes withheld to 
which the claim relates, and a statement that includes the following 
representations and explanation--
    (A) The reason(s) for the overpayment;
    (B) A representation that the participating FFI or reporting Model 
1 FFI or its withholding agent deposited the tax for which a refund is 
being sought under section 6302 and has not applied the reimbursement 
or set-off procedure of Sec.  1.1474-2 to adjust the tax withheld to 
which the claim relates;
    (C) A representation that the participating FFI or reporting Model 
1 FFI has repaid or will repay the amount for which refund is sought to 
the appropriate account holders or payees;
    (D) A representation that the participating FFI or reporting Model 
1 FFI retains a record showing the total amount of tax withheld, 
credits from other withholding agents, tax assumed by the participating 
FFI or reporting Model 1 FFI, adjustments for underwithholding, and 
reimbursements for overwithholding as its relates to each account 
holder and payee and also showing the repayment to such account holders 
or payees for the amount of tax for which a refund is being sought;
    (E) A representation that the participating FFI or reporting Model 
1 FFI retains valid documentation that meets the requirements of 
chapters 3 (if applicable) and 4 to substantiate the amount of 
overwithholding with respect to each account holder and payee for which 
a refund is being sought and that such documentation is available to 
the IRS upon request; and
    (F) A representation that the participating FFI or reporting Model 
1 FFI will not issue a Form 1042-S (or such other form as the IRS may 
prescribe) to any account holder or payee for which a refund is being 
sought.
    (i) Legal prohibitions on reporting U.S. accounts and withholding--
(1) In general. A participating FFI (or branch thereof) that is 
prohibited by foreign law from reporting the information required under 
paragraph (d) of this section with respect to a U.S. account must 
follow the procedures of paragraph (i)(2) of this section to obtain a 
valid and effective waiver of such law and, if such waiver is not 
obtained within a reasonable period of time, to close or transfer such 
account. A participating FFI (or branch thereof) that is prohibited by 
law from withholding with respect to a recalcitrant account holder or 
nonparticipating FFI as required under paragraph (b) of this section is 
required to perform the procedures of paragraph (i)(3) of this section 
to obtain an authorization to withhold on payments made to the account 
holder or payee to the extent required under paragraph (b) of this 
section, close the account or terminate the obligation (as applicable), 
or to sell the assets in the account that produce (or could produce) 
withholdable payments and, if such authorization is not obtained within 
a reasonable period of time, to transfer or block such account or 
obligation. An FFI that cannot comply with any of the requirements of 
this paragraph (i) is not eligible to enter into an FFI agreement with 
the IRS, but may obtain status as a limited FFI if the FFI meets the 
requirements and agrees to the conditions of paragraph (e)(3) of this 
section. If a branch of an FFI cannot comply with the requirements of 
this paragraph (i), then the FFI must agree to the conditions of a 
limited branch as described in paragraph (e)(2) of this section to 
obtain status as a participating FFI.
    (2) Requesting waiver or closure of a U.S. account--(i) In general. 
If a participating FFI (or branch thereof) is prohibited by law from 
reporting the information required under paragraph (d) of this section 
with respect to a U.S. account that it maintains unless a valid and 
effective waiver of such law is obtained, the participating FFI must 
request a valid and effective waiver (including by obtaining waivers 
from all relevant account holders if necessary). For accounts other 
than preexisting accounts, the participating FFI must obtain a valid 
and effective waiver upon opening the account or, if prohibitions on 
disclosure cannot by law be waived, the participating FFI must refrain 
from opening accounts that are U.S. accounts or must transfer such 
accounts as described in paragraph (i)(2)(iii) of this section. 
Beginning on the date provided in Sec.  1.1471-5(g)(3) and until such 
time as the holder of a U.S. account either consents to disclosure or 
closure of the account or until the account is transferred, the 
participating FFI is required to treat the account as held by a 
recalcitrant account holder.
    (ii) Valid and effective waiver for a U.S. account. For purposes of 
this paragraph (i)(2), a valid and effective waiver is a waiver that, 
under the applicable law governing the participating FFI's agreement 
with the account holder, permits the participating FFI (or branch 
thereof) to report to the IRS all of the information specified in 
paragraph (d) of this section with respect to the U.S. account and 
permits the FFI to provide the IRS with additional information 
concerning such account as specified in paragraph (f) or (g) of this 
section.
    (iii) Closure or transfer of U.S. account. If the participating FFI 
(or branch thereof) is prohibited by law from reporting a U.S. account 
to the IRS under paragraph (d) of this section and the participating 
FFI either does not obtain a valid and effective waiver (and Form W-9) 
or prohibitions on disclosure cannot by law be waived, the 
participating FFI (or branch thereof) must close or transfer the 
account within a reasonable time. If the participating FFI cannot close 
or transfer the account absent the account

[[Page 5961]]

holder consenting to closure, the participating FFI must request such a 
consent from such account holder and, if obtained, close or transfer 
the account within a reasonable period of time.
    (3) Legal prohibitions preventing withholding--(i) In general. If 
the participating FFI (or branch thereof) is prohibited by law from 
withholding with respect to payments subject to withholding under 
paragraph (b) of this section, the participating FFI (or a branch 
thereof) must obtain the authorization described in this paragraph 
(i)(3)(i) from each account holder or payee receiving such payments to 
either withhold, close the account or terminate the obligation, or sell 
all of the assets in the account that produce (or could produce) 
withholdable payments. If the participating FFI does not receive such 
authorization from the account holder or payee within a reasonable 
period of time, the participating FFI must block or transfer such 
accounts or obligations as described in paragraph (i)(3)(ii) of this 
section.
    (ii) Block or transfer accounts or obligations. If the 
participating FFI does not receive the authorization described in 
paragraph (i)(3)(i) of this section from the account holder or payee 
within a reasonable period of time and is prohibited by law from 
closing accounts or terminating obligations with account holders or 
payees as described in paragraph (i)(3)(i) of this section, the 
participating FFI must either block or transfer such accounts or 
obligations prior to the date on which the participating FFI would 
otherwise be required to withhold under paragraph (b) of this section. 
See paragraph (e)(2)(iii)(B) of this section for when an account is 
considered blocked. A transfer of an account or obligation must be made 
to a branch of the FFI that may so withhold or to a participating FFI 
or reporting Model 1 FFI.
    (j) Effective/applicability date. This section generally applies on 
January 28, 2013. For other dates of applicability, see Sec. Sec.  
1.1471-4(b)(1), (4); 1.1471-4(d)(7); 1.1471-4(e)(2)(v); 1.1471-
4(e)(3)(iv).

0
Par. 9. Section 1.1471-5 is added to read as follows:


Sec.  1.1471-5  Definitions applicable to section 1471.

    (a) U.S. accounts--(1) In general. This paragraph (a) defines the 
term U.S. account and describes when a person is treated as the holder 
of a financial account (account holder). This paragraph also provides 
rules for determining when an exception to U.S. account status applies 
for certain depository accounts, including account aggregation 
requirements relevant to applying the exception.
    (2) Definition of U.S. account. Subject to the exception described 
in paragraph (a)(4)(i) of this section, a U.S. account is any financial 
account maintained by an FFI that is held by one or more specified U.S. 
persons or U.S. owned foreign entities. For the definition of the term 
financial account, see paragraph (b) of this section. For the 
definition of the term specified U.S. person, see Sec.  1.1473-1(c). 
For the definition of the term U.S. owned foreign entity, see paragraph 
(c) of this section. For reporting requirements of participating FFIs 
with respect to U.S. accounts, see Sec.  1.1471-4(d).
    (3) Account holder--(i) In general. Except as otherwise provided in 
this paragraph (a)(3), the account holder is the person listed or 
identified as the holder or owner of the account with the FFI that 
maintains the account, regardless of whether such person is a flow-
through entity. Thus, for example, except as otherwise provided in 
paragraphs (a)(3)(ii) and (iii) of this section, if a trust (including 
a simple or grantor trust) or an estate is listed as the holder or 
owner of a financial account, the trust or estate is the account 
holder, rather than its owners or beneficiaries. Similarly, except as 
otherwise provided in this paragraph (a)(3), if a partnership is listed 
as the holder or owner of a financial account, the partnership is the 
account holder, rather than the partners in the partnership. In the 
case of an account held by an entity that is disregarded for U.S. 
federal tax purposes under Sec.  301.7701-2(c)(2)(i) of this chapter, 
the account shall be treated as held by the person owning such entity. 
With respect to an account held by an exempt beneficial owner, such 
account is treated as held by an exempt beneficial owner only when all 
payments made to such account would be treated as made to an exempt 
beneficial owner. See Sec.  1.1471-6(h) for when a payment derived from 
certain commercial activities is not treated as made to an exempt 
beneficial owner.
    (ii) Grantor trust. A trust is not treated as an account holder if 
a person is treated as the owner of the entire trust under sections 671 
through 679. In that case, the account is held by the person that is 
treated as the owner of the trust under such sections. In the case of a 
person that is treated as the owner of a portion of the trust under 
sections 671 through 679--
    (A) If such person is treated as owning all the assets in the 
account under sections 671 through 679, the account is treated as held 
by such person;
    (B) If such person is treated as owning a portion of the account or 
the assets in the account under sections 671 through 679, the account 
is treated as held by both such person and the trust; and
    (C) If such person is not treated as owning any portion of the 
account or any of the assets in the account under sections 671 through 
679, the account is treated as held by the trust.
    (iii) Financial accounts held by agents that are not financial 
institutions. A person, other than a financial institution, that holds 
a financial account for the benefit or account of another person as an 
agent, custodian, nominee, signatory, investment advisor, or 
intermediary, is not treated as an account holder with respect to such 
account for purposes of this section. Instead, such other person is 
treated as the account holder.
    (iv) Jointly held accounts. With respect to a jointly held account, 
each joint holder is treated as an account holder for purposes of 
determining whether the account is a U.S. account. Thus, an account is 
a U.S. account if any of the account holders is a specified U.S. person 
or a U.S. owned foreign entity and the account is not otherwise 
excepted from U.S. account status under paragraph (a)(4) of this 
section. When more than one U.S. person is a joint holder, each U.S. 
person will be treated as an account holder and will be attributed the 
entire balance of the jointly held account, including for purposes of 
applying the aggregation rules set forth in paragraph (b)(4)(iii) of 
this section.
    (v) Account holder for insurance and annuity contracts. An 
insurance or annuity contract is held by each person that is entitled 
to access the contract's value (for example, through a loan, 
withdrawal, surrender, or otherwise) or change a beneficiary under the 
contract. If no person can access the contract's value or change a 
beneficiary, the account holders are any person named in the contract 
as an owner and any person who is entitled to receive a future payment 
under the terms of the contract. When an obligation to pay an amount 
under the contract becomes fixed, each person entitled to receive a 
payment is an account holder.
    (vi) Examples. The following examples illustrate the provisions of 
paragraph (a)(3) of this section:

    Example 1. Account held by agent. F, a nonresident alien, holds 
a power of attorney from U, a specified U.S. person, that authorizes 
F to open, hold, and make deposits and withdrawals with respect to a 
depository account on behalf of U. The balance of the account for 
the calendar year is $100,000. F is listed as the holder of the

[[Page 5962]]

depository account at a participating FFI, but because F holds the 
account as an agent for the benefit of U, F is not ultimately 
entitled to the funds in the account. Because the depository account 
is treated as held by U, a specified U.S. person, the account is a 
U.S. account.
    Example 2. Jointly held accounts. U, a specified U.S. person, 
holds a depository account in a participating FFI. The balance of 
the account for the calendar year is $100,000. The account is 
jointly held with A, an individual who is a nonresident alien. 
Because one of the joint holders is a specified U.S. person, the 
account is a U.S. account.
    Example 3. Jointly held accounts. U and Q, both specified U.S. 
persons, hold a depository account in a participating FFI. The 
balance of the account for the calendar year is $100,000. The 
account is a U.S. account and both U and Q are treated as holders of 
the account.

    (4) Exceptions to U.S. account status--(i) Exception for certain 
individual accounts of participating FFIs. Unless a participating FFI 
elects under paragraph (a)(4)(ii) of this section not to apply this 
paragraph (a)(4)(i), the term U.S. account shall not include any 
depository account maintained by such financial institution during a 
calendar year if the account is held solely by one or more individuals 
and, with respect to each holder of such account, the aggregate balance 
or value of all depository accounts held by each such individual does 
not exceed $50,000 as of the end of the calendar year or on the date 
the account is closed. For rules for determining the account balance or 
value, see paragraphs (a)(3)(iv) and (b)(4) of this section.
    (ii) Election to forgo exception. A participating FFI may elect to 
disregard the exception described in paragraph (a)(4)(i) of this 
section by reporting all U.S. accounts, including those accounts that 
would otherwise meet the conditions of the exception.

    (iii) Example. Aggregation rules for exception to U.S. account 
status for certain depository accounts. In Year 1, a U.S. resident 
individual, U, holds a depository account with CB, a commercial bank 
that is a participating FFI. The balance in U's CB account at the 
end of Year 1 is $35,000. In Year 1, U also holds a custodial 
account with CB's brokerage business. The custodial account has a 
$45,000 balance as of the end of Year 1. CB's retail banking and 
brokerage businesses share computerized information management 
systems that associate U's depository account and U's custodial 
account with U and with one another within the meaning of paragraph 
(b)(4)(iii)(A) of this section. For purposes of applying the $50,000 
threshold described in paragraph (a)(4)(i) of this section, however, 
a depository account is aggregated only with other depository 
accounts. Therefore, U's depository account is eligible for the 
paragraph (a)(4)(i) exception to U.S. account status because the 
balance of the depository account does not exceed $50,000.

    (b) Financial accounts--(1) In general. Except as otherwise 
provided in this paragraph (b), the term financial account means--
    (i) Depository account. Any depository account (as defined in 
paragraph (b)(3)(i) of this section) maintained by a financial 
institution;
    (ii) Custodial account. Any custodial account (as defined in 
paragraph (b)(3)(ii) of this section) maintained by a financial 
institution;
    (iii) Equity or debt interest--(A) Equity or debt interests in an 
investment entity. Any equity or debt interest (other than interests 
regularly traded on an established securities market under paragraph 
(e)(3)(iv) of this section) in an investment entity described in 
paragraph (e)(4)(i)(B) or (C) of this section (including an entity that 
is also a depository institution, custodial institution, insurance 
company, or investment entity described in paragraph (e)(4)(i)(A) of 
this section);
    (B) Certain equity or debt interests in a holding company or 
treasury center. Any equity or debt interest (other than interests 
regularly traded on an established securities market under paragraph 
(e)(3)(iv) of this section) in a holding company or treasury center 
described in paragraph (e)(1)(v) of this section if--
    (1) The expanded affiliated group of which the entity is a member 
includes one or more investment entities described in paragraph 
(e)(4)(i)(B) or (C) of this section or passive NFFEs and the income 
derived by such investment entities or passive NFFEs is 50 percent or 
more of the aggregate income earned by the expanded affiliated group;
    (2) The redemption or retirement amount or return earned on the 
interest is determined, directly or indirectly, primarily by reference 
to one or more investment entities described in paragraph (e)(4)(i)(B) 
or (C) of this section or one or more passive NFFEs that are members of 
the entity's expanded affiliated group (as determined under paragraph 
(b)(3)(vi) of this section);
    (3) The value of the interest is determined, directly or 
indirectly, primarily by reference to assets that give rise (or could 
give rise) to withholdable payments (as determined under paragraph 
(b)(3)(v)) of this section); or
    (4) The interest is issued with a principal purpose of avoiding the 
reporting or withholding requirements of chapter 4;
    (C) Equity or debt interests in other financial institutions. Any 
equity or debt interest (other than interests regularly traded on an 
established securities market under paragraph (e)(3)(iv) of this 
section) in an entity that is a depository institution, custodial 
institution, investment entity described in paragraph (e)(4)(i)(A) of 
this section, or insurance company if--
    (1) The value of the interest is determined, directly or 
indirectly, primarily by reference to assets that give rise (or could 
give rise) to withholdable payments (as determined under paragraph 
(b)(3)(v) of this section); or
    (2) The interest is issued with a principal purpose of avoiding the 
reporting or withholding requirements of chapter 4.
    (iv) Insurance and annuity contracts. A contract issued or 
maintained by an insurance company, a holding company (as described in 
paragraph (e)(5)(i)(C) of this section) of an insurance company, or a 
financial institution described in paragraphs (e)(1)(i), (ii), (iii), 
or (v) of this section, if the contract is a cash value insurance 
contract (as defined in paragraph (b)(3)(vii) of this section) or an 
annuity contract.
    (2) Exceptions. A financial account does not include an account 
described in this paragraph (b)(2).
    (i) Certain savings accounts--(A) Retirement and pension accounts. 
A retirement or pension account that satisfies the following conditions 
under the laws of the jurisdiction where the account is maintained:
    (1) The account is subject to regulation as a personal retirement 
account or is part of a registered or regulated retirement or pension 
plan for the provision of retirement or pension benefits (including 
disability or death benefits);
    (2) The account is tax-favored (as described in paragraph 
(b)(2)(i)(E) of this section);
    (3) Annual information reporting is required to the relevant tax 
authorities with respect to the account;
    (4) Withdrawals are conditioned on reaching a specified retirement 
age, disability, or death, or penalties apply to withdrawals made 
before such specified events; and
    (5) Either--
    (i) Annual contributions are limited to $50,000 or less, or
    (ii) There is a maximum lifetime contribution limit to the account 
of $1,000,000 or less.
    (B) Non-retirement savings accounts. An account (other than an 
insurance or annuity contract) that satisfies the following conditions 
under the laws of the jurisdiction where the account is maintained:

[[Page 5963]]

    (1) The account is subject to regulation as a savings vehicle for 
purposes other than for retirement;
    (2) The account is tax-favored (as described in paragraph 
(b)(2)(i)(E) of this section);
    (3) Withdrawals are conditioned on meeting specific criteria 
related to the purpose of the savings account (for example, the 
provision of educational or medical benefits), or penalties apply to 
withdrawals made before such criteria are met; and
    (4) Annual contributions are limited to $50,000 or less;
    (C) Rollovers. A financial account that otherwise satisfies the 
requirements of paragraph (b)(2)(i)(A) or (B) of this section will not 
fail to satisfy such requirements solely because such financial account 
may receive assets or funds transferred from one or more financial 
accounts that meet the requirements of paragraph (b)(2)(i)(A) or (B) of 
this section or from one or more retirement or pension funds that meet 
the requirements of paragraph (f)(2)(ii) of this section or Sec.  
1.1471-6(f).
    (D) Coordination with section 6038D. The exclusions provided under 
paragraph (b)(2)(i) of this section shall not apply for purposes of 
determining whether an account or other arrangement is a financial 
account for purposes of section 6038D.
    (E) Account that is tax-favored. For purposes of this paragraph 
(b)(2)(i), an account is tax-favored under the laws of a jurisdiction 
where the account is maintained if--
    (1) Contributions to the account that would otherwise be subject to 
tax under such laws are deductible or excluded from the gross income of 
the account holder or taxed at a reduced rate; or
    (2) Taxation of investment income from the account is deferred or 
taxed at a reduced rate.
    (ii) Certain term life insurance contracts. A life insurance 
contract with a coverage period that will end before the insured 
individual attains age 90, provided that the contract satisfies the 
following conditions--
    (A) Periodic premiums, which do not decrease over time, are payable 
at least annually during the period the contract is in existence or 
until the insured attains age 90, whichever is shorter;
    (B) The contract has no contract value that any person can access 
(by withdrawal, loan, or otherwise) without terminating the contract;
    (C) The amount (other than a death benefit) payable upon 
cancellation or termination of the contract cannot exceed the aggregate 
premiums paid for the contract, less the sum of mortality, morbidity, 
and expense charges (whether or not actually imposed) for the period or 
periods of the contract's existence and any amounts paid prior to the 
cancellation or termination of the contract; and
    (D) The contract is not held by a transferee for value.
    (iii) Account held by an estate. An account that is held solely by 
an estate if the documentation for such account includes a copy of the 
deceased's will or death certificate.
    (iv) Certain escrow accounts. An escrow account that is established 
in connection with--
    (A) A court order or judgment; or
    (B) A sale, exchange, or lease of real or personal property, 
provided that the account meets the following conditions--
    (1) The account is funded solely with a down payment, earnest 
money, deposit in an amount appropriate to secure an obligation of one 
of the parties directly related to the transaction, or a similar 
payment, or with a financial asset that is deposited in the account in 
connection with the sale, exchange, or lease of the property;
    (2) The account is established and used solely to secure the 
obligation of the purchaser to pay the purchase price for the property, 
the seller to pay any contingent liability, or the lessor or lessee to 
pay for any damages relating to the leased property as agreed under the 
lease;
    (3) The assets of the account, including the income earned thereon, 
will be paid or otherwise distributed for the benefit of the purchaser, 
seller, lessor, or lessee (including to satisfy such person's 
obligation) when the property is sold, exchanged, or surrendered, or 
the lease terminates;
    (4) The account is not a margin or similar account established in 
connection with a sale or exchange of a financial asset; and
    (5) The account is not associated with a credit card account.
    (v) Certain annuity contracts. A non-investment linked, non-
transferable, immediate life annuity contract (including a disability 
annuity) that monetizes a retirement or pension account described in 
paragraph (b)(2)(i)(A) of this section.
    (vi) Account or product excluded under an intergovernmental 
agreement. An account or product that is excluded from the definition 
of financial account under the terms of an applicable Model 1 IGA or 
Model 2 IGA.
    (3) Definitions. The following definitions apply for purposes of 
chapter 4--
    (i) Depository account--(A) In general. Except as otherwise 
provided in this paragraph (b)(3)(i), the term depository account means 
any account that is--
    (1) A commercial, checking, savings, time, or thrift account, or an 
account that is evidenced by a certificate of deposit, thrift 
certificate, investment certificate, passbook, certificate of 
indebtedness, or any other instrument for placing money in the custody 
of an entity engaged in a banking or similar business for which such 
institution is obligated to give credit (regardless of whether such 
instrument is interest bearing or non-interest bearing), including, for 
example, a credit balance with respect to a credit card account issued 
by a credit card company that is engaged in a banking or similar 
business; or
    (2) Any amount held by an insurance company under a guaranteed 
investment contract or under a similar agreement to pay or credit 
interest thereon or to return the amount held.
    (B) Exceptions. A depository account does not include--
    (1) A negotiable debt instrument that is traded on a regulated 
market or over-the-counter market and distributed and held through 
financial institutions; or
    (2) An advance premium or premium deposit described in paragraph 
(b)(3)(vii)(C)(5) of this section.
    (ii) Custodial account. The term custodial account means an 
arrangement for holding a financial instrument, contract, or investment 
(including, but not limited to, a share of stock in a corporation, a 
note, bond, debenture, or other evidence of indebtedness, a currency or 
commodity transaction, a credit default swap, a swap based upon a 
nonfinancial index, a notional principal contract as defined in Sec.  
1.446-3(c), an insurance or annuity contract, and any option or other 
derivative instrument) for the benefit of another person.
    (iii) Equity interest in certain entities--(A) Partnership. In the 
case of a partnership that is a financial institution, the term equity 
interest means either a capital or profits interest in the partnership.
    (B) Trust. In the case of a trust that is a financial institution, 
an equity interest means an interest held by--
    (1) A person who is an owner of all or a portion of the trust under 
sections 671 through 679;
    (2) A beneficiary who is entitled to a mandatory distribution from 
the trust as defined in Sec.  1.1473-1(b)(3); or
    (3) A beneficiary who may receive a discretionary distribution as 
defined in Sec.  1.1473-1(b)(3) from the trust but only if such person 
receives a distribution in the calendar year.

[[Page 5964]]

    (iv) Regularly traded on an established securities market. Debt or 
equity interests described in paragraph (b)(1)(iii) of this section are 
regularly traded on an established securities market if the 
requirements of Sec.  1.1472-1(c)(1)(i)(A) and (C) are met. For 
purposes of paragraph (b)(1)(iii) of this section, an interest is not 
regularly traded on an established securities market if the holder of 
the interest (excluding a financial institution acting as an 
intermediary) is registered on the books of the investment entity. The 
preceding sentence shall not apply to the extent a holder's interest is 
registered prior to January 1, 2014, on the books of the investment 
entity.
    (v) Value of interest determined, directly or indirectly, primarily 
by reference to assets that give rise (or could give rise) to 
withholdable payments--(A) Equity interest. The value of an equity 
interest is determined, directly or indirectly, primarily by reference 
to assets that give rise (or could give rise) to withholdable payments 
if--
    (1) The amount payable upon redemption by the issuer of the 
interest is secured primarily by reference to assets that give rise (or 
could give rise) to withholdable payments; or
    (2) In the case of an unsecured interest, the amount payable upon 
redemption is determined primarily by reference to assets that give 
rise (or could give rise) to withholdable payments.
    (B) Debt interest. The value of a debt interest is determined, 
directly or indirectly, primarily by reference to assets that give rise 
(or could give rise) to withholdable payments if--
    (1) Debt is convertible into stock of a U.S. person;
    (2) Amounts payable as interest or upon redemption or retirement of 
the debt are determined primarily by reference to profits or assets of 
a U.S person; or
    (3) The debt is secured by assets of a U.S. person.
    (vi) Redemption or retirement amount or return earned on the 
interest determined, directly or indirectly, primarily by reference to 
one or more investment entities or passive NFFEs--(A) Equity interest. 
The return earned on an equity interest is determined, directly or 
indirectly, primarily by reference to one or more investment entities 
described in paragraph (e)(4)(i)(B) or (C) of this section or passive 
NFFEs that are members of the entity's expanded affiliated group if the 
return on such interest (including upon a sale, exchange, or 
redemption) is determined primarily by reference to the value or income 
(including the value of or income from one or more assets) of one or 
more investment entities described in paragraph (e)(4)(i)(B) or (C) of 
this section or passive NFFEs that are members of the entity's expanded 
affiliated group.
    (B) Debt interest. The redemption or retirement amount or return 
earned on a debt interest is determined, directly or indirectly, 
primarily by reference to one or more investment entities described in 
paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are 
members of entity's expanded affiliated group if--
    (1) Debt is convertible into stock of one or more investment 
entities described in paragraph (e)(4)(i)(B) or (C) of this section or 
passive NFFEs that are members of the entity's expanded affiliated 
group;
    (2) Amounts payable as interest or upon redemption or retirement of 
the debt are determined primarily by reference to the value or income 
(including the value of or income from one or more assets) of one or 
more investment entities described in paragraph (e)(4)(i)(B) or (C) of 
this section or passive NFFEs that are members of the entity's expanded 
affiliated group; or
    (3) The debt is primarily secured by the assets of one or more 
investment entities described in paragraph (e)(4)(i)(B) or (C) of this 
section or passive NFFEs that are members of the entity's expanded 
affiliated group or is guaranteed by one or more such entities.
    (vii) Cash value insurance contract--(A) In general. The term cash 
value insurance contract means an insurance contract (other than an 
indemnity reinsurance contract between two insurance companies and a 
term life insurance contract described in paragraph (b)(2)(ii) of this 
section) that has an aggregate cash value greater than $50,000 at any 
time during the calendar year, applying the rules set forth in 
paragraph (b)(4)(iii) of this section. A participating FFI may elect to 
disregard the $50,000 threshold in the preceding sentence by reporting 
all contracts with a cash value greater than zero.
    (B) Cash value. Except as otherwise provided in paragraph 
(b)(3)(vii)(C) of this section, the term cash value means any amount 
(determined without reduction for any charge or policy loan) that--
    (1) Is payable under the contract to any person upon surrender, 
termination, cancellation, or withdrawal; or
    (2) Any person can borrow under or with regard to (for example, by 
pledging as collateral) the contract.
    (C) Amounts excluded from cash value. Cash value does not include 
an amount payable--
    (1) Solely by reason of the death of an individual insured under a 
life insurance contract;
    (2) As a personal injury or sickness benefit or a benefit providing 
indemnification of an economic loss incurred upon the occurrence of the 
event insured against;
    (3) As a refund of a previously paid premium (less cost of 
insurance charges whether or not actually imposed) under an insurance 
contract (other than a life insurance or annuity contract) due to 
cancellation or termination of the contract, decrease in risk exposure 
during the effective period of the contract, or arising from the 
correction of a posting or similar error with regard to the premium for 
the contract; or
    (4) As a policyholder dividend (other than a termination dividend) 
provided that the dividend relates to an insurance contract under which 
the only benefits payable are described in paragraph (b)(3)(vii)(C)(2) 
of this section.
    (5) As a return of an advance premium or premium deposit for an 
insurance contract for which the premium is payable at least annually 
if the amount of the advance premium or premium deposit does not exceed 
the next annual premium that will be payable under the contract.
    (D) Policyholder dividend--(1) For purposes of paragraph 
(b)(3)(vii)(C)(4) of this section and except as otherwise provided in 
this paragraph, a policyholder dividend means any dividend or similar 
distribution to policyholders in their capacity as such, including--
    (i) An amount paid or credited (including as an increase in 
benefits) if the amount is not fixed in the contract but rather depends 
on the experience of the insurance company or the discretion of 
management;
    (ii) A reduction in the premium that, but for the reduction, would 
have been required to be paid; and
    (iii) An experience rated refund or credit based solely upon the 
claims experience of the contract or group involved.
    (2) A policyholder dividend cannot exceed the premiums previously 
paid for the contract, less the sum of the cost of insurance and 
expense charges (whether or not actually imposed) during the contract's 
existence and the aggregate amount of any prior dividends paid or 
credited with regard to the contract.
    (3) A policyholder dividend does not include any amount that is in 
the nature of interest that is paid or credited to a

[[Page 5965]]

contract holder to the extent that such amount exceeds the minimum rate 
of interest required to be credited with respect to contract values 
under local law.
    (4) Account balance or value. This paragraph (b)(4) provides rules 
for determining the balance or value of a financial account for 
purposes of chapter 4. For example, the rules of this paragraph apply 
for purposes of determining whether an FFI meets the requirements of 
paragraph (f)(2)(i), (f)(2)(ii) or (f)(3) of this section to certify to 
a deemed-compliant FFI status. The rules of this paragraph also apply 
to a participating FFI's due diligence and reporting obligations to the 
extent required under Sec.  1.1471-4(c) or (d) and to a U.S. 
withholding agent's due diligence obligations to the extent required 
under Sec.  1.1471-3.
    (i) In general. Except as otherwise provided in paragraph 
(b)(4)(ii) of this section with respect to immediate annuities, the 
balance or value of a financial account is the balance or value 
calculated by the financial institution for purposes of reporting to 
the account holder. In the case of an account described in paragraph 
(b)(1)(iii) of this section, the balance or value of an equity interest 
is the value calculated by the financial institution for the purpose 
that requires the most frequent determination of value, and the balance 
or value of a debt interest is its principal amount. Except as provided 
in paragraph (b)(3)(vii) of this section, the balance or value of an 
insurance or annuity contract is the balance or value as of either the 
calendar year end or the most recent contract anniversary date. The 
balance or value of the account is not to be reduced by any liabilities 
or obligations incurred by an account holder with respect to the 
account or any of the assets held in the account and is not to be 
reduced by any fees, penalties, or other charges for which the account 
holder may be liable upon terminating, transferring, surrendering, 
liquidating, or withdrawing cash from the account. Each holder of a 
jointly held account is attributed the entire balance or value of the 
joint account. See Sec.  1.1473-1(b)(3) for rules regarding the 
valuation of trust interests that also apply under this paragraph 
(b)(4)(i) to determine the value of trust interests that are financial 
accounts.
    (ii) Special rule for immediate annuity--(A) Immediate annuities 
without minimum benefit guarantees. If the value of an immediate 
annuity contract with no minimum benefit guarantee is not reported to 
the account holder, the account balance or value of the contract is the 
sum of the net present values on the valuation date of the amounts 
reasonably expected to be payable in future periods under the contract.
    (B) Immediate annuities with a minimum benefit guarantee. The 
account balance or value of an annuity contract with a minimum 
guarantee is the sum of the net present values on the valuation date 
of--
    (1) The non-guaranteed amounts reasonably expected to be payable in 
future periods; and
    (2) The guaranteed amounts payable in future periods.
    (C) Net present value of amounts payable in future periods. The net 
present value of an amount payable in a future period shall be 
determined using--
    (1) A reasonable actuarial valuation method, and
    (2) The mortality tables and interest rate(s)--
    (i) Prescribed pursuant to section 7520 and the regulations 
thereunder; or
    (ii) Used by the issuer of the contract to determine the amounts 
payable under the contract.
    (iii) Account aggregation requirements--(A) In general. To the 
extent a financial institution is required under chapter 4 to determine 
the aggregate balance or value of an account, the financial institution 
is required to aggregate the account balance or value of all accounts 
that are held (in whole or in part) by the same person and that are 
maintained by the financial institution or members of its expanded 
affiliated group, but only to the extent that the financial 
institution's computerized systems link the accounts by reference to a 
data element, such as client number, EIN, or foreign tax identifying 
number, and allow the account balances of such accounts to be 
aggregated. Notwithstanding the rules set forth in this paragraph 
(b)(4)(iii), a financial institution is required to aggregate the 
balance or value of accounts that it treats as consolidated 
obligations.
    (B) Aggregation rule for relationship managers. To the extent a 
financial institution is required under chapter 4 to apply the 
aggregation rules of this paragraph (b)(4)(iii), the financial 
institution also is required to aggregate all accounts that a 
relationship manager knows are directly or indirectly owned, 
controlled, or established (other than in a fiduciary capacity) by the 
same person, as well as all accounts that the relationship manager has 
associated with one another through a relationship code, customer 
identification number, TIN, or similar indicator, or that the 
relationship manager would typically associate with each other under 
the procedures of the financial institution (or the department, 
division, or unit with which the relationship manager is associated).
    (C) Examples. The following examples illustrate the account 
aggregation requirements of this paragraph (b)(4)(iii):

    Example 1. FFI not required to aggregate accounts for U.S. 
account exception. A U.S. resident individual, U, holds a depository 
account with Branch 1 of CB, a commercial bank that is a 
participating FFI. The balance in U's Branch 1 account at the end of 
Year 1 is $35,000. U also holds a depository account with Branch 2 
of CB, with a $45,000 balance at the end of Year 1. CB's retail 
banking businesses share computerized information management systems 
across its branches, but U's accounts are not associated with one 
another in the shared computerized information system. In addition, 
CB has not assigned a relationship manager to U or U's accounts. 
Because the accounts are not associated in CB's system or by a 
relationship manager, CB is not required to aggregate the accounts 
under paragraph (b)(4)(iii) and both accounts are eligible for the 
exception to U.S. account status described in paragraph (a)(4)(i) of 
this section as neither account exceeds the $50,000 threshold.
    Example 2. FFI required to aggregate accounts for U.S. account 
exception. Same facts as Example 1, except that both of U's 
depository accounts are associated with U and with one another by 
reference to CB's internal identification number. The system shows 
the account balances for both accounts, and such balances may be 
electronically aggregated, though the system does not show a 
combined balance for the accounts. In determining whether such 
accounts meet the exception to U.S. account status described in 
paragraph (a)(4)(i) of this section for certain depository accounts 
with an aggregate balance or value of $50,000 or less, CB is 
required to aggregate the account balances of all depository 
accounts under the rules of paragraph (b)(4)(iii) of this section. 
Under those rules, U is treated as holding depository accounts with 
CB with an aggregate balance of $80,000. Accordingly, neither 
account is eligible for the exception to U.S. account status, 
because the accounts, when aggregated, exceed the $50,000 threshold.
    Example 3. Aggregation rules for joint accounts maintained by a 
participating FFI. In Year 1, a U.S. resident individual, U, holds a 
custodial account that is a preexisting account at custodial 
institution CI, a participating FFI. The balance in U's CI custodial 
account at the end of Year 1 is $35,000. U also holds a joint 
custodial account that is a preexisting account with her sister, A, 
a nonresident alien for U.S. federal income tax purposes, with 
another custodial institution, CI2. The balance in the joint account 
at the end of Year 1 is also $35,000. CI and CI2 are part of the 
same expanded affiliated group and share computerized information 
management systems. Both U's custodial account at CI and U and A's 
custodial account at CI2 are associated with

[[Page 5966]]

U and with one another by reference to CI's internal identification 
number and the system allows the balances to be aggregated. In 
determining whether such accounts meet the documentation exception 
described in Sec.  1.1471-4(c)(4)(iv) for certain preexisting 
individual accounts with an aggregate balance or value of $50,000 or 
less, CI is required to aggregate the account balances of accounts 
held in whole or in part by the same account holder under the rules 
of paragraph (b)(4)(iii) of this section. Under those rules, U is 
treated as having financial accounts with C1 and CI2, each with an 
aggregate balance of $70,000. Accordingly, neither account is 
eligible for the documentation exception.
    Example 4.  Aggregation for applying indefinite validity 
periods. In Year 1, an owner-documented FFI, O, holds an offshore 
account with Branch 1 of CB, a commercial bank that is a U.S. 
withholding agent. The balance in O's CB account at the end of Year 
1 is $600,000. In Year 1, O also holds an account in the United 
States with Branch 2 of CB. The Branch 2 account has a $450,000 
balance at the end of Year 1. CB's banking businesses share 
computerized information management systems across its branches. O's 
accounts are associated with one another in the shared computerized 
information system and the system allows the balances to be 
aggregated. In determining whether CB is permitted to apply an 
indefinite validity period for the documentation submitted for O's 
account at Branch 1 pursuant to Sec.  1.1471-3(c)(6)(ii)(C)(4) 
(permitting indefinite validity for a withholding statement of an 
owner-documented FFI if the balance or value of all accounts held by 
the owner-documented FFI does not exceed $1,000,000), CB is required 
to aggregate the account balance of O's accounts at Branch 1 and 
Branch 2 to the extent required under the rules of paragraph 
(b)(4)(iii) of this section. Accordingly, O is treated as holding 
financial accounts with CB with an aggregate balance of $1,050,000 
and the documentation submitted for O's account at Branch 1 is not 
eligible for the indefinite validity period described under Sec.  
1.1471-3(c)(6)(ii)(C)(4).

    (iv) Currency translation of balance or value. If the balance or 
value of a financial account, other obligation, or the aggregate amount 
payable under a group life or group annuity contract described in Sec.  
1.1471-4(c)(4) is denominated in a currency other than U.S. dollars, a 
withholding agent must calculate the balance or value by applying a 
spot rate determined under Sec.  1.988-1(d) to translate such balance 
or value into the U.S. dollar equivalent. For the purpose of a 
participating or registered deemed-compliant FFI reporting an account 
under Sec.  1.1471-4(d), the spot rate must be determined as of the 
last day of the calendar year (or, in the case of an insurance contract 
or annuity contract, the most recent contract anniversary date, when 
applicable) for which the account is being reported or, if the account 
was closed during such calendar year, the date the account was closed. 
In the case of an FFI determining whether an account meets (or 
continues to meet) a preexisting account documentation exception 
described in Sec.  1.1471-4(c)(3)(iii), (c)(4)(iv), or (c)(4)(v) or 
whether the account is an account described in paragraph (a)(4)(i) of 
this section, the spot rate must be determined on the date for which 
the FFI is determining the threshold amount as prescribed in those 
provisions.
    (5) Account maintained by financial institution. A custodial 
account is maintained by the financial institution that holds custody 
over the assets in the account (including a financial institution that 
holds assets in street name for an account holder in such institution). 
A depository account is maintained by the financial institution that is 
obligated to make payments with respect to the account (excluding an 
agent of a financial institution regardless of whether such agent is a 
financial institution under paragraph (e)(1) of this section). Any 
equity or debt interest in a financial institution that constitutes a 
financial account under paragraph (b)(1)(iii) of this section is 
maintained by such financial institution. A cash value insurance 
contract or an annuity contract described in paragraph (b)(1)(iv) of 
this section is maintained by the financial institution that is 
obligated to make payments with respect to the contract.
    (c) U.S. owned foreign entity. The term U.S. owned foreign entity 
means any foreign entity that has one or more substantial U.S. owners 
(as defined in Sec.  1.1473-1(b)), including a foreign entity described 
in paragraph (c)(2) of this section. See Sec.  1.1473-1(e) for the 
definition of foreign entity for purposes of chapter 4. For the 
requirements applicable to determining direct and indirect ownership in 
an entity, see Sec.  1.1473-1(b)(2).
    (d) Definition of FFI. The term FFI means, with respect to any 
entity that is not resident in a country that has in effect a Model 1 
IGA or Model 2 IGA, any financial institution (as defined in paragraph 
(e) of this section) that is a foreign entity. With respect to any 
entity that is resident in a country that has in effect a Model 1 IGA 
or Model 2 IGA, an FFI is any entity that is treated as a Financial 
Institution pursuant to such Model 1 IGA or Model 2 IGA. A territory 
financial institution is not an FFI under this paragraph (d).
    (e) Definition of financial institution--(1) In general. Except as 
otherwise provided in paragraph (e)(5) of this section, the term 
financial institution means any entity that--
    (i) Accepts deposits in the ordinary course of a banking or similar 
business (as defined in paragraph (e)(2) of this section) (depository 
institution);
    (ii) Holds, as a substantial portion of its business (as defined in 
paragraph (e)(3) of this section), financial assets for the benefit of 
one or more other persons (custodial institution);
    (iii) Is an investment entity (as defined in paragraph (e)(4) of 
this section);
    (iv) Is an insurance company or a holding company (as described in 
paragraph (e)(5)(i)(C) of this section) that is a member of an expanded 
affiliated group that includes an insurance company, and the insurance 
company or holding company issues, or is obligated to make payments 
with respect to, a cash value insurance or annuity contract described 
in paragraph (b)(1)(iv) of this section (specified insurance company); 
or
    (v) Is an entity that is a holding company or treasury center (as 
described in paragraphs (e)(5)(i)(C) and (e)(5)(i)(D)(1) of this 
section) that--
    (A) Is part of an expanded affiliated group that includes a 
depository institution, custodial institution, insurance company, or 
investment entity described in paragraphs (e)(4)(i)(B) and (C) of this 
section; or
    (B) Is formed in connection with or availed of by a collective 
investment vehicle, mutual fund, exchange traded fund, private equity 
fund, hedge fund, venture capital fund, leveraged buyout fund, or any 
similar investment vehicle established with an investment strategy of 
investing, reinvesting, or trading in financial assets.
    (2) Banking or similar business--(i) In general. Except as 
otherwise provided in paragraph (e)(2)(ii) of this section, an entity 
is considered to be engaged in a banking or similar business if, in the 
ordinary course of its business with customers, the entity accepts 
deposits or other similar investments of funds and regularly engages in 
one or more of the following activities--
    (A) Makes personal, mortgage, industrial, or other loans or 
provides other extensions of credit;
    (B) Purchases, sells, discounts, or negotiates accounts receivable, 
installment obligations, notes, drafts, checks, bills of exchange, 
acceptances, or other evidences of indebtedness;
    (C) Issues letters of credit and negotiates drafts drawn 
thereunder;
    (D) Provides trust or fiduciary services;
    (E) Finances foreign exchange transactions; or
    (F) Enters into, purchases, or disposes of finance leases or leased 
assets.

[[Page 5967]]

    (ii) Exception for certain lessors and lenders. An entity is not 
considered to be engaged in a banking or similar business for purposes 
of this paragraph (e)(2) if the entity solely accepts deposits from 
persons as collateral or security pursuant to a sale or lease of 
property or pursuant to a similar financing arrangement between such 
entity and the person holding the deposit with the entity.
    (iii) Application of section 581. Entities engaged in a banking or 
similar business include, but are not limited to, entities that would 
qualify as banks under section 585(a)(2) (including banks as defined in 
section 581 and any corporation to which section 581 would apply but 
for the fact that it is a foreign corporation).
    (iv) Effect of local regulation. Whether an entity is subject to 
the banking and credit laws of a foreign country, the United States, a 
State, a U.S. territory, or a subdivision thereof, or is subject to 
supervision and examination by agencies having regulatory oversight of 
banking or similar institutions, is relevant to, but not necessarily 
determinative of, whether that entity qualifies as a financial 
institution under section 1471(d)(5)(A). Whether an entity conducts a 
banking or similar business is determined based upon the character of 
the actual activities of such entity.
    (3) Holding financial assets for others as a substantial portion of 
its business--(i) Substantial portion--(A) In general. An entity holds 
financial assets for the account of others as a substantial portion of 
its business if the entity's gross income attributable to holding 
financial assets and related financial services equals or exceeds 20 
percent of the entity's gross income during the shorter of--
    (1) The three-year period ending on December 31 of the year 
preceding the year in which the determination is made; or
    (2) The period during which the entity has been in existence before 
the determination is made.
    (B) Special rule for start-up entities. An entity with no operating 
history as of the date of the determination is considered to hold 
financial assets for the account of others as a substantial portion of 
its business if the entity expects to meet the gross income threshold 
described in paragraph (e)(3)(i)(B) of this section based on its 
anticipated functions, assets, and employees, with due consideration 
given to any purpose or functions for which the entity is licensed or 
regulated (including those of any predecessor).
    (ii) Income attributable to holding financial assets and related 
financial services. For purposes of this paragraph (e)(3), income 
attributable to holding financial assets and related financial services 
means custody, account maintenance, and transfer fees; commissions and 
fees earned from executing and pricing securities transactions; income 
earned from extending credit to customers with respect to financial 
assets held in custody (or acquired through such extension of credit); 
income earned on the bid-ask spread of financial assets; and fees for 
providing financial advice and for clearance and settlement services.
    (iii) Effect of local regulation. Whether an entity is subject to 
the banking and credit, broker-dealer, fiduciary, or other similar laws 
and regulations of the United States, a State, a U.S. territory, a 
political subdivision thereof, or a foreign country, or to supervision 
and examination by agencies having regulatory oversight of banks, 
credit issuers, or other financial institutions, is relevant to, but 
not necessarily determinative of, whether that entity holds financial 
assets for the account of others as a substantial portion of its 
business.
    (4) Investment entity--(i) In general. The term investment entity 
means any entity that is described in paragraph (e)(4)(i)(A), (B), or 
(C) of this section.
    (A) The entity primarily conducts as a business one or more of the 
following activities or operations for or on behalf of a customer--
    (1) Trading in money market instruments (checks, bills, 
certificates of deposit, derivatives, etc.); foreign currency; foreign 
exchange, interest rate, and index instruments; transferable 
securities; or commodity futures;
    (2) Individual or collective portfolio management; or
    (3) Otherwise investing, administering, or managing funds, money, 
or financial assets on behalf of other persons.
    (B) The entity's gross income is primarily attributable to 
investing, reinvesting, or trading in financial assets (as defined in 
paragraph (e)(4)(ii) of this section) and the entity is managed by 
another entity that is described in paragraph (e)(1)(i), (ii), (iv), or 
(e)(4)(i)(A) of this section. For purposes of this paragraph 
(e)(4)(i)(B), an entity is managed by another entity if the managing 
entity performs, either directly or through another third-party service 
provider, any of the activities described in paragraph (e)(4)(i)(A) of 
this section on behalf of the managed entity.
    (C) The entity functions or holds itself out as a collective 
investment vehicle, mutual fund, exchange traded fund, private equity 
fund, hedge fund, venture capital fund, leveraged buyout fund, or any 
similar investment vehicle established with an investment strategy of 
investing, reinvesting, or trading in financial assets.
    (ii) Financial assets. For purposes of this paragraph, the term 
financial asset means a security (as defined in section 475(c)(2) 
without regard to the last sentence thereof), partnership interest, 
commodity (as defined in section 475(e)(2)), notional principal 
contract (as defined in Sec.  1.446-3(c)), insurance contract or 
annuity contract, or any interest (including a futures or forward 
contract or option) in a security, partnership interest, commodity, 
notional principal contract, insurance contract, or annuity contract.
    (iii) Primarily conducts as a business--(A) In general. An entity 
is treated as primarily conducting as a business one or more of the 
activities described in paragraph (e)(4)(i)(A) of this section if the 
entity's gross income attributable to such activities equals or exceeds 
50 percent of the entity's gross income during the shorter of--
    (1) The three-year period ending on December 31 of the year 
preceding the year in which the determination is made; or
    (2) The period during which the entity has been in existence.
    (B) Special rule for start-up entities. An entity with no operating 
history as of the date of the determination is treated as primarily 
conducting as a business one or more of the activities described in 
paragraph (e)(4)(i)(A) of this section if such entity expects to meet 
the gross income threshold described in paragraph (e)(4)(iii)(A) of 
this section based on its anticipated functions, assets, and employees, 
with due consideration given to any purpose or functions for which the 
entity is licensed or regulated (including those of any predecessor).
    (iv) Primarily attributable to investing, reinvesting, or trading 
in financial assets--(A) In general. An entity's gross income is 
primarily attributable to investing, reinvesting, or trading in 
financial assets for purposes of paragraph (e)(4)(i)(B) of this section 
if the entity's gross income attributable to investing, reinvesting, or 
trading in financial assets equals or exceeds 50 percent of the 
entity's gross income during the shorter of--
    (1) The three-year period ending on December 31 of the year 
preceding the year in which the determination is made; or
    (2) The period during which the entity has been in existence.

[[Page 5968]]

    (B) Special rule for start-up entities. An entity with no operating 
history as of the date of the determination will be considered to have 
income that is primarily attributable to investing, reinvesting, or 
trading in financial assets for purposes of paragraph (e)(4)(i)(B) of 
this section if such entity expects to meet the income threshold 
described in paragraph (e)(4)(iv)(A) of this section based on its 
anticipated functions, assets, and employees, with due consideration 
given to any purpose or functions for which the entity is licensed or 
regulated (including those of any predecessor).
    (v) Examples. The following examples illustrate the provisions of 
paragraph (e)(4) of this section:

    Example 1. Investment advisor. Fund Manager is an investment 
entity within the meaning of paragraph (e)(4)(i)(A) of this section. 
Fund Manager, among its various business operations, organizes and 
manages a variety of funds, including Fund A, a fund that invests 
primarily in equities. Fund Manager hires Investment Advisor, a 
foreign entity, to provide advice about the financial assets in 
which Fund A invests. Investment Advisor earned more than 50% of its 
gross income for the last three years from providing services as an 
investment advisor. Because Investment Adviser primarily conducts as 
a business providing investment advice on behalf of clients, 
Investment Advisor is an investment entity under paragraph 
(e)(4)(i)(A) of this section and an FFI under paragraph (e)(1)(iii) 
of this section.
    Example 2. Entity that is managed by an FFI. The facts are the 
same as in Example 1. In addition, in every year since it was 
organized, Fund A has earned more than 50% of its gross income from 
investing in financial assets. Accordingly, Fund A is an investment 
entity under paragraph (e)(4)(i)(B) of this section because it is 
managed by Fund Manager and Investment Advisor and its gross income 
is primarily attributable to investing, reinvesting, or trading in 
financial assets.
    Example 3.  Investment manager. Investment Manager, a U.S. 
entity, is an investment entity within the meaning of paragraph 
(e)(4)(i)(A) of this section. Investment Manager organizes and 
registers Fund A in Country A. Investment Manager is authorized to 
facilitate purchases and sales of financial assets held by Fund A in 
accordance with Fund A's investment strategy. In every year since it 
was organized, Fund A has earned more than 50% of its gross income 
from investing, reinvesting, or trading in financial assets. 
Accordingly, Fund A is an investment entity under paragraph 
(e)(4)(i)(B) of this section and an FFI under paragraph (e)(1)(iii) 
of this section.
    Example 4. Foreign real estate investment fund that is managed 
by an FFI. The facts are the same as in Example 3, except that Fund 
A's assets consist solely of non-debt, direct interests in real 
property located within and without the United States. Fund A is not 
an investment entity under paragraph (e)(4)(i)(B) of this section, 
even though it is managed by Investment Manager, because less than 
50% of its gross income is attributable to investing, reinvesting, 
or trading in financial assets.
    Example 5.  Trust managed by an individual. On January 1, 2013, 
X, an individual, establishes Trust A, a nongrantor foreign trust 
for the benefit of X's children, Y and Z. X appoints Trustee A, an 
individual, to act as the trustee of Trust A. Trust A's assets 
consists solely of financial assets, and its income consists solely 
of income from those financial assets. Pursuant to the terms of the 
trust instrument, Trustee A manages and administers the assets of 
the trust. Trustee A does not hire any entity as a third-party 
service provider to perform any of the activities described in 
paragraph (e)(4)(i)(A) of this section. Trust A is not an investment 
entity under paragraph (e)(4)(i)(B) of this section because it is 
managed solely by Trustee A, an individual.
    Example 6.  Trust managed by a trust company. The facts are the 
same as in Example 5, except that X hires Trust Company, an FFI, to 
act as trustee on behalf of Trust A. As trustee, Trust Company 
manages and administers the assets of Trust A in accordance with the 
terms of the trust instrument for the benefit of Y and Z. Because 
Trust A is managed by an FFI, Trust A is an investment entity under 
paragraph (e)(4)(i)(B) of this section and an FFI under paragraph 
(e)(1)(iii) of this section.
    Example 7. Individual introducing broker. IB, an individual 
introducing broker, provides investing advice to her clients, and 
uses the services of a foreign entity to conduct and execute trades 
on behalf of her clients. IB has earned 50% or more of her gross 
income for the past three years from her services as an investment 
advisor. Because IB is an individual, she is not an investment 
entity within the meaning of paragraph (e)(4) of this section.
    Example 8. Entity introducing broker. The facts are the same as 
in Example 7, except that IB is a foreign entity and not an 
individual. Because IB is an entity that conducts investment 
activities and its gross income is primarily attributable to such 
investment activities, IB is an investment entity under paragraph 
(e)(4)(i)(A) of this section and an FFI under paragraph (e)(1)(iii) 
of this section.

    (5) Exclusions. A financial institution does not include an entity 
described in this paragraph, provided that the entity is not also 
described in paragraph (e)(1)(iv) of this section. For the treatment of 
foreign entities described in this paragraph under section 1472, see 
Sec.  1.1472-1(c)(1)(vi).
    (i) Excepted nonfinancial group entities--(A) In general. A foreign 
entity that is a member of a nonfinancial group (as defined in 
paragraph (e)(5)(i)(B) of this section) if--
    (1) The entity is not a depository institution or custodial 
institution (other than for members of its expanded affiliated group);
    (2) The entity is a holding company, treasury center, or captive 
finance company and substantially all the activities of such entity are 
to perform one or more of the functions described in paragraphs 
(e)(5)(i)(C), (D), or (E) of this section; and
    (3) The entity does not hold itself out as (and was not formed in 
connection with or availed of by) an arrangement or investment vehicle 
that is a private equity fund, venture capital fund, leveraged buyout 
fund, or any similar investment vehicle established with an investment 
strategy to acquire or fund companies and to treat the interests in 
those companies as capital assets held for investment purposes.
    (B) Nonfinancial group. An expanded affiliated group is a 
nonfinancial group if, taking into account the application of this 
section,--
    (1) For the three-year period preceding the year for which the 
determination is made, no more than 25 percent of the gross income of 
the expanded affiliated group (excluding income derived by any member 
that is an entity described in paragraph (e)(5)(ii) or (iii) of this 
section) consists of passive income (as defined in Sec.  1.1472-
1(c)(1)(v)); no more than five percent of the gross income of the 
expanded affiliated group is derived by members of the expanded 
affiliated group that are FFIs (excluding income derived from 
transactions between members of the expanded affiliated group or by any 
member of the expanded affiliated group that is a certified deemed-
compliant FFI); and no more than 25 percent of the fair market value of 
assets held by the expanded affiliated group (excluding assets held by 
a member that is an entity described in paragraph (e)(5)(ii) or (iii) 
of this section) are assets that produce or are held for the production 
of passive income; and
    (2) Any member of the expanded affiliated group that is an FFI is 
either a participating FFI or deemed-compliant FFI.
    (C) Holding company. For purposes of this paragraph (e)(5)(i), an 
entity is a holding company if its primary activity consists of holding 
(directly or indirectly) all or part of the outstanding stock of one or 
more members of its expanded affiliated group.
    (D) Treasury center--(1) Except as otherwise provided in this 
paragraph, an entity is a treasury center for purposes of this 
paragraph (e)(5)(i) if the primary activity of such entity is to enter 
into investment, hedging, and financing transactions with or for 
members of its expanded affiliated group for purposes of--
    (i) Managing the risk of price changes or currency fluctuations 
with respect to

[[Page 5969]]

property that is held or to be held by the expanded affiliated group 
(or any member thereof);
    (ii) Managing the risk of interest rate changes, price changes, or 
currency fluctuations with respect to borrowings made or to be made by 
the expanded affiliated group (or any member thereof);
    (iii) Managing the risk of interest rate changes, price changes, or 
currency fluctuations with respect to assets or liabilities to be 
reflected in financial statements of the expanded affiliated group (or 
any member thereof);
    (iv) Managing the working capital of the expanded affiliated group 
(or any member thereof) by investing or trading in financial assets 
solely for the account and risk of such entity or any member of its 
expanded affiliated group; or
    (v) Acting as a financing vehicle for borrowing funds for use by 
the expanded affiliated group (or any member thereof).
    (2) An entity is not a treasury center if any equity or debt 
interest in the entity is held by a person that is not a member of the 
entity's expanded affiliated group and the redemption or retirement 
amount or return earned on such interest is determined primarily by 
reference to--
    (i) The investment, hedging, and financing activities of the 
treasury center with members outside of its expanded affiliated group; 
or
    (ii) Any member of the group that is an investment entity described 
in (e)(4)(i)(B) or passive NFFE (as described in paragraph (b)(3)(vi) 
of this section with respect to either such entity).
    (E) Captive finance company. For purposes of this paragraph 
(e)(5)(i), an entity is a captive finance company if the primary 
activity of such entity is to enter into financing (including the 
extension of credit) or leasing transactions with or for suppliers, 
distributors, dealers, franchisees, or customers of such entity or of 
any member of such entity's expanded affiliated group that is an active 
NFFE.
    (ii) Excepted nonfinancial start-up companies or companies entering 
a new line of business--(A) In general. A foreign entity that is 
investing capital in assets with the intent to operate a new business 
or line of business other than that of a financial institution or 
passive NFFE for a period of--
    (1) In the case of an entity intending to operate a new business, 
24 months from the initial organization of such entity; and
    (2) In the case of an entity with the intent to operate a new line 
of business, 24 months from the date of the board resolution (or its 
equivalent) approving the new line of business, provided that such 
entity qualified as an active NFFE for the 24 months preceding the date 
of such approval.
    (B) Exception for investment funds. An entity is not described in 
this paragraph (e)(5)(ii) if the entity functions (or holds itself out) 
as an investment fund, such as a private equity fund, venture capital 
fund, leveraged buyout fund, or any investment vehicle whose purpose is 
to acquire or fund companies and hold interests in those companies as 
capital assets for investment purposes.
    (iii) Excepted nonfinancial entities in liquidation or bankruptcy. 
A foreign entity that was not a financial institution or passive NFFE 
at any time during the past five years and that is in the process of 
liquidating its assets or reorganizing with the intent to continue or 
recommence operations as a nonfinancial entity.
    (iv) Excepted inter-affiliate FFI. A foreign entity that is a 
member of a participating FFI group if--
    (A) The entity does not maintain financial accounts (other than 
accounts maintained for members of its expanded affiliated group);
    (B) The entity does not hold an account with or receive payments 
from any withholding agent other than a member of its expanded 
affiliated group;
    (C) The entity does not make withholdable payments to any person 
other than to members of its expanded affiliated group that are not 
limited FFIs or limited branches; and
    (D) The entity has not agreed to report under Sec.  1.1471-
4(d)(1)(ii) or otherwise act as an agent for chapter 4 purposes on 
behalf of any financial institution, including a member of its expanded 
affiliated group.
    (v) Section 501(c) entities. A foreign entity that is described in 
section 501(c) other than an insurance company described in section 
501(c)(15).
    (vi) Non-profit organizations. A foreign entity that is established 
and maintained in its country of residence exclusively for religious, 
charitable, scientific, artistic, cultural or educational purposes if--
    (A) The entity is exempt from income tax in its country of 
residence;
    (B) The entity has no shareholders or members who have a 
proprietary or beneficial interest in its income or assets;
    (C) Neither the laws of the entity's country of residence nor the 
entity's formation documents permit any income or assets of the entity 
to be distributed to, or applied for the benefit of, an individual or 
noncharitable entity other than pursuant to the conduct of the entity's 
charitable activities, or as payment of reasonable compensation for 
services rendered or the use of property, or as payment representing 
the fair market value of property that the entity has purchased; and
    (D) The laws of the entity's country of residence or the entity's 
formation documents require that, upon the entity's liquidation or 
dissolution, all of its assets be distributed to an entity that meets 
the requirements of Sec.  1.1471-6(b) or another organization that 
meets the requirements of this paragraph (e)(5)(vi) or escheat to the 
government of the entity's country of residence or any political 
subdivision thereof.
    (6) Reserving activities of an insurance company. The reserving 
activities of an insurance company will not cause the company to be a 
financial institution described in (e)(1)(i), (ii), or (iii) of this 
section.
    (f) Deemed-compliant FFIs. The term deemed-compliant FFI includes a 
registered deemed-compliant FFI (as defined in paragraph (f)(1) of this 
section), a certified deemed-compliant FFI (as defined in paragraph 
(f)(2) of this section), and, to the extent provided in paragraph 
(f)(3) of this section, an owner-documented FFI. A deemed-compliant FFI 
will be treated pursuant to section 1471(b)(2) as having met the 
requirements of section 1471(b). A deemed-compliant FFI that complies 
with the due diligence and withholding requirements applicable to such 
entity as provided in this paragraph (f) will also be deemed to have 
met its withholding obligations under sections 1471(a) and 1472(a). For 
this purpose, an intermediary or flow-through entity that has a 
residual withholding obligation under Sec.  1.1471-2(a)(2)(ii) must 
fulfill such obligation to be considered a deemed-compliant FFI.
    (1) Registered deemed-compliant FFIs. A registered deemed-compliant 
FFI means an FFI that meets the procedural requirements described in 
paragraph (f)(1)(ii) of this section and that either is described in 
any of paragraphs (f)(1)(i)(A) through (F) of this section or is 
treated as a registered deemed-compliant FFI under a Model 2 IGA. A 
registered deemed-compliant FFI also includes any FFI, or branch of an 
FFI, that is a reporting Model 1 FFI that complies with the 
registration requirements of a Model 1 IGA.
    (i) Registered deemed-compliant FFI categories--(A) Local FFIs. An 
FFI is described in this paragraph (f)(1)(i)(A) if the FFI meets the 
following requirements.
    (1) The FFI is licensed and regulated as a financial institution 
under the laws of its country of incorporation or

[[Page 5970]]

organization (which must be a FATF-compliant jurisdiction at the time 
the FFI registers for deemed-compliant status).
    (2) The FFI does not have a fixed place of business outside its 
country of incorporation or organization. For this purpose, a fixed 
place of business does not include a location that is not advertised to 
the public and from which the FFI performs solely administrative 
support functions.
    (3) The FFI does not solicit customers or account holders outside 
its country of incorporation or organization. For this purpose, an FFI 
will not be considered to have solicited customers or account holders 
outside its country of incorporation or organization merely because it 
operates a Web site, provided that the Web site does not specifically 
indicate that the FFI maintains accounts for or provides services to 
nonresidents, and does not otherwise target or solicit U.S. customers 
or account holders. An FFI will also not be considered to have 
solicited customers or account holders outside its country of 
incorporation or organization merely because it advertises in print 
media or on a radio or television station that is distributed or aired 
primarily within its country of incorporation or organization but is 
also incidentally distributed or aired in other countries, provided 
that the advertisement does not specifically indicate that the FFI 
maintains accounts for or provides services to nonresidents and does 
not otherwise target or solicit U.S. customers or account holders.
    (4) The FFI is required under the laws of its country of 
incorporation or organization to identify resident account holders for 
purposes of either information reporting or withholding of tax with 
respect to accounts held by residents or is required to identify 
resident accounts for purposes of satisfying such country's AML due 
diligence requirements.
    (5) At least 98 percent of the accounts by value maintained by the 
FFI as of the last day of the preceding calendar year are held by 
residents (including residents that are entities) of the country in 
which the FFI is incorporated or organized. An FFI that is incorporated 
or organized in a member state of the European Union may treat account 
holders that are residents (including residents that are entities) of 
other member states of the European Union as residents of the country 
in which the FFI is incorporated or organized for purposes of this 
calculation.
    (6) By the later of December 31, 2013, or the date it registers as 
a deemed-compliant FFI, the FFI implements policies and procedures, 
consistent with those set forth for a participating FFI under Sec.  
1.1471-4(c), to monitor whether the FFI opens or maintains an account 
for a specified U.S. person who is not a resident of the country in 
which the FFI is incorporated or organized (including a U.S. person 
that was a resident when the account was opened but subsequently ceases 
to be a resident), an entity controlled or beneficially owned (as 
determined under the FFI's AML due diligence) by one or more specified 
U.S. persons that are not residents of the country in which the FFI is 
incorporated or organized, or a nonparticipating FFI. Such policies and 
procedures must provide that if any such account is discovered, the FFI 
will close such account, transfer such account to a participating FFI, 
reporting Model 1 FFI, or U.S. financial institution, or withhold and 
report on such account as would be required under Sec.  1.1471-4(b) and 
(d) if the FFI were a participating FFI.
    (7) With respect to each preexisting account held by a nonresident 
of the country in which the FFI is organized or held by an entity, the 
FFI reviews those accounts in accordance with the procedures described 
in Sec.  1.1471-4(c) applicable to preexisting accounts to identify any 
U.S. account or account held by a nonparticipating FFI, and certifies 
to the IRS that it did not identify any such account as a result of its 
review, that it has closed any such accounts that were identified or 
transferred them to a participating FFI, reporting Model 1 FFI, or U.S. 
financial institution, or that it agrees to withhold and report on such 
accounts as would be required under Sec.  1.1471-4(b) and (d) if it 
were a participating FFI.
    (8) In the case of an FFI that is a member of an expanded 
affiliated group, each FFI in the group is incorporated or organized in 
the same country and, with the exception of any member that is a 
retirement plan described in Sec.  1.1471-6(f), meets the requirements 
set forth in this paragraph (f)(1)(i)(A) and the procedural 
requirements of paragraph (f)(1)(ii) of this section.
    (9) The FFI does not have policies or practices that discriminate 
against opening or maintaining accounts for individuals who are 
specified U.S. persons and who are residents of the FFI's country of 
incorporation or organization.
    (B) Nonreporting members of participating FFI groups. An FFI that 
is a member of a participating FFI group is described in this paragraph 
(f)(1)(i)(B) if it meets the following requirements.
    (1) By the later of December 31, 2013, or the date it registers 
with the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI 
implements policies and procedures to ensure that within six months of 
opening a U.S. account or an account held by a recalcitrant account 
holder or a nonparticipating FFI, the FFI either transfers such account 
to an affiliate that is a participating FFI, reporting Model 1 FFI, or 
U.S. financial institution, closes the account, or becomes a 
participating FFI.
    (2) The FFI reviews its accounts that were opened prior to the time 
it implements the policies and procedures (including time frames) 
described in paragraph (f)(1)(i)(B)(1) of this section, using the 
procedures described in Sec.  1.1471-4(c) applicable to preexisting 
accounts of participating FFIs, to identify any U.S. account or account 
held by a nonparticipating FFI. Within six months of the identification 
of any account described in this paragraph, the FFI transfers the 
account to an affiliate that is a participating FFI, reporting Model 1 
FFI, or U.S. financial institution, closes the account, or becomes a 
participating FFI.
    (3) By the later of December 31, 2013, or the date it registers 
with the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI 
implements policies and procedures to ensure that it identifies any 
account that becomes a U.S. account or an account held by a 
recalcitrant account holder or a nonparticipating FFI due to a change 
in circumstances. Within six months of the date on which the FFI first 
has knowledge or reason to know of the change in the account holder's 
chapter 4 status, the FFI transfers any such account to an affiliate 
that is a participating FFI, reporting Model 1 FFI, or U.S. financial 
institution, closes the account, or becomes a participating FFI.
    (C) Qualified collective investment vehicles. An FFI is described 
in this paragraph (f)(1)(i)(C) if it meets the following requirements.
    (1) The FFI is an FFI solely because it is an investment entity, 
and it is regulated as an investment fund either in its country of 
incorporation or organization or in all of the countries in which it is 
registered and all of the countries in which it operates. A fund will 
be considered to be regulated as an investment fund under this 
paragraph if its manager is regulated with respect to the investment 
fund in all of the countries in which the investment fund is registered 
and in all of the countries in which the investment fund operates.
    (2) Each holder of record of direct debt interests in the FFI in 
excess of $50,000, direct equity interests in the FFI (for example the 
holders of its units or global certificates), and any other account 
holder of the FFI is a

[[Page 5971]]

participating FFI, registered deemed-compliant FFI, retirement plan 
described in Sec.  1.1471-6(f), non-profit organization described in 
paragraph (e)(5)(vi) of this section, U.S. person that is not a 
specified U.S. person, nonreporting IGA FFI, or exempt beneficial 
owner. Notwithstanding the prior sentence, an FFI will not be 
prohibited from qualifying as a qualified collective investment vehicle 
solely because it has issued interests in bearer form provided that the 
FFI ceased issuing interests in such form after December 31, 2012, 
retires all such interests upon surrender, and establishes policies and 
procedures to redeem or immobilize all such interests prior to January 
1, 2017, and that prior to payment the FFI documents the account holder 
in accordance with the procedures set forth in Sec.  1.1471-4(c) 
applicable to accounts other than preexisting accounts and agrees to 
withhold and report on such accounts as would be required under Sec.  
1.1471-4(b) and (d) if it were a participating FFI. For purposes of 
this paragraph (f)(1)(i)(C), an FFI may disregard equity interests 
owned by specified U.S. persons acquired with seed capital within the 
meaning of paragraph (i)(4) of this section if the specified U.S. 
person is described in paragraph (i)(3)(i) and (ii) of this section 
(substituting the term ``U.S. person'' for ``FFI'' and ``member''), and 
the specified U.S. person neither has held, nor intends to hold, such 
interest for more than three years.
    (3) In the case of an FFI that is part of an expanded affiliated 
group, all other FFIs in the expanded affiliated group are 
participating FFIs, registered deemed-compliant FFIs, sponsored FFIs 
described in paragraph (f)(1)(i)(F)(1) or (2) of this section, 
nonreporting IGA FFIs, or exempt beneficial owners.
    (D) Restricted funds. An FFI is described in this paragraph 
(f)(1)(i)(D) if it meets the following requirements.
    (1) The FFI is an FFI solely because it is an investment entity, 
and it is regulated as an investment fund under the laws of its country 
of incorporation or organization (which must be a FATF-compliant 
jurisdiction at the time the FFI registers for deemed-compliant status) 
or in all of the countries in which it is registered and in all of the 
countries in which it operates. A fund will be considered to be 
regulated as an investment fund for purposes of this paragraph if its 
manager is regulated with respect to the fund in all of the countries 
in which the investment fund is registered and in all of the countries 
in which the investment fund operates.
    (2) Interests issued directly by the fund are redeemed by or 
transferred by the fund rather than sold by investors on any secondary 
market. Notwithstanding the prior sentence, an FFI will not be 
prohibited from qualifying as a restricted fund solely because it 
issued interests in bearer form provided that the FFI ceased issuing 
interests in bearer form after December 31, 2012, retires all such 
interests upon surrender, and establishes policies and procedures to 
redeem or immobilize all such interests prior to January 1, 2017, and 
that prior to payment the FFI documents the account holder in 
accordance with the procedures set forth in Sec.  1.1471-4(c) 
applicable to accounts other than preexisting accounts and agrees to 
withhold and report on such accounts as would be required under Sec.  
1.1471-4(b) and (d) if it were a participating FFI. For purposes of 
this paragraph (f)(1)(i)(D), interests in the FFI that are issued by 
the fund through a transfer agent or distributor that does not hold the 
interests as a nominee of the account holder will be considered to have 
been issued directly by the fund.
    (3) Interests that are not issued directly by the fund are sold 
only through distributors that are participating FFIs, registered 
deemed-compliant FFIs, nonregistering local banks described in 
paragraph (f)(2)(i) of this section, or restricted distributors 
described in paragraph (f)(4) of this section. For purposes of this 
paragraph (f)(1)(i)(D) and paragraph (f)(4) of this section, a 
distributor means an underwriter, broker, dealer, or other person who 
participates, pursuant to a contractual arrangement with the FFI, in 
the distribution of securities and holds interests in the FFI as a 
nominee.
    (4) The FFI ensures that by the later of June 30, 2014, or six 
months after the date the FFI registers as a deemed-compliant FFI, each 
agreement that governs the distribution of its debt or equity interests 
prohibits sales and other transfers of debt or equity interests in the 
FFI (other than interests that are both distributed by and held through 
a participating FFI) to specified U.S. persons, nonparticipating FFIs, 
or passive NFFEs with one or more substantial U.S. owners. In addition, 
by that date, the FFI's prospectus and all marketing materials must 
indicate that sales and other transfers of interests in the FFI to 
specified U.S. persons, nonparticipating FFIs, or passive NFFEs with 
one or more substantial U.S. owners are prohibited unless such 
interests are both distributed by and held through a participating FFI.
    (5) The FFI ensures that by the later of June 30, 2014, or six 
months after the date the FFI registers as a deemed-compliant FFI, each 
agreement entered into by the FFI that governs the distribution of its 
debt or equity interests requires the distributor to notify the FFI of 
a change in the distributor's chapter 4 status within 90 days of the 
change. The FFI must certify to the IRS that, with respect to any 
distributor that ceases to qualify as a distributor identified in 
paragraph (f)(1)(i)(D)(3) of this section, the FFI will terminate its 
distribution agreement with the distributor, or cause the distribution 
agreement to be terminated, within 90 days of notification of the 
distributor's change in status and, with respect to all debt and equity 
interests of the FFI issued through that distributor, will redeem those 
interests, convert those interests to direct holdings in the fund, or 
cause those interests to be transferred to another distributor 
identified in paragraph (f)(1)(i)(D)(3) of this section within six 
months of the distributor's change in status.
    (6) With respect to any of the FFI's preexisting direct accounts 
that are held by the beneficial owner of the interest in the FFI, the 
FFI reviews those accounts in accordance with the procedures (and time 
frames) described in Sec.  1.1471-4(c) applicable to preexisting 
accounts to identify any U.S. account or account held by a 
nonparticipating FFI. Notwithstanding the previous sentence, the FFI 
will not be required to review the account of any individual investor 
that purchased its interest at a time when all of the FFI's 
distribution agreements and its prospectus contained an explicit 
prohibition of the issuance and/or sale of shares to U.S. entities and 
U.S. resident individuals. An FFI will not be required to review the 
account of any investor that purchased its interest in bearer form 
until the time of payment, but at such time will be required to 
document the account in accordance with procedures set forth in Sec.  
1.1471-4(c) applicable to accounts other than preexisting accounts. By 
the later of June 30, 2014, or six months after the date the FFI 
registers as a deemed-compliant FFI, the FFI will be required to 
certify to the IRS either that it did not identify any U.S. account or 
account held by a nonparticipating FFI as a result of its review or, if 
any such accounts were identified, that the FFI will either redeem such 
accounts, transfer such accounts to an affiliate or other FFI that is a 
participating FFI, reporting Model 1 FFI, or U.S. financial

[[Page 5972]]

institution, or withhold and report on such accounts as would be 
required under Sec.  1.1471-4(b) and (d) if it were a participating 
FFI.
    (7) By the later of December 31, 2013, or the date that it 
registers as a deemed-compliant FFI, the FFI implements the policies 
and procedures described in Sec.  1.1471-4(c) to ensure that it 
either--
    (i) Does not open or maintain an account for, or make a 
withholdable payment to, any specified U.S. person, nonparticipating 
FFI, or passive NFFE with one or more substantial U.S. owners and, if 
it discovers any such accounts, closes all accounts for any such person 
within six months of the date that the FFI had reason to know the 
account holder became such a person; or
    (ii) Withholds and reports on any account held by, or any 
withholdable payment made to, any specified U.S. person, 
nonparticipating FFI, or passive NFFE with one or more substantial U.S. 
owners to the extent and in the manner that would be required under 
Sec.  1.1471-4(b) and (d) if the FFI were a participating FFI.
    (8) For an FFI that is part of an expanded affiliated group, all 
other FFIs in the expanded affiliated group are participating FFIs, 
registered deemed-compliant FFIs, sponsored FFIs described in paragraph 
(f)(2)(iii)(B) or (C) of this section, nonreporting IGA FFIs, or exempt 
beneficial owners.
    (E) Qualified credit card issuers. An FFI is described in this 
paragraph (f)(1)(i)(E) if the FFI meets the following requirements.
    (1) The FFI is an FFI solely because it is an issuer of credit 
cards that accepts deposits only when a customer makes a payment in 
excess of a balance due with respect to the card and the overpayment is 
not immediately returned to the customer.
    (2) By the later of December 31, 2013, or the date it registers as 
a deemed-compliant FFI, the FFI implements policies and procedures to 
either prevent a customer deposit in excess of $50,000 or to ensure 
that any customer deposit in excess of $50,000 is refunded to the 
customer within 60 days. For this purpose, a customer deposit does not 
refer to credit balances to the extent of disputed charges but does 
include credit balances resulting from merchandise returns.
    (F) Sponsored investment entities and controlled foreign 
corporations. An FFI is described in this paragraph (f)(1)(i)(F) if the 
FFI is described in paragraph (f)(1)(i)(F)(1) or (2) of this section 
and the sponsoring entity meets the requirements of paragraph 
(f)(1)(i)(F)(3) of this section.
    (1) An FFI is a sponsored investment entity described in this 
paragraph (f)(1)(i)(F)(1) if--
    (i) It is an investment entity that is not a QI, WP, or WT; and
    (ii) An entity has agreed with the FFI to act as a sponsoring 
entity for the FFI.
    (2) An FFI is a sponsored controlled foreign corporation described 
in this paragraph (f)(1)(i)(F)(2) if the FFI meets the following 
requirements--
    (i) The FFI is a controlled foreign corporation as defined in 
section 957(a) that is not a QI, WP, or WT;
    (ii) The FFI is wholly owned, directly or indirectly, by a U.S. 
financial institution that agrees with the FFI to act as a sponsoring 
entity for the FFI; and
    (iii) The FFI shares a common electronic account system with the 
sponsoring entity that enables the sponsoring entity to identify all 
account holders and payees of the FFI and to access all account and 
customer information maintained by the FFI including, but not limited 
to, customer identification information, customer documentation, 
account balance, and all payments made to the account holder or payee.
    (3) A sponsoring entity described in paragraph (f)(1)(i)(F)(1)(ii) 
or (f)(1)(i)(F)(2)(ii) of this section meets the requirements of this 
paragraph (f)(1)(i)(F)(3) if the sponsoring entity--
    (i) Is authorized to manage the FFI and enter into contracts on 
behalf of the FFI (such as a fund manager, trustee, corporate director, 
or managing partner);
    (ii) Has registered with the IRS as a sponsoring entity;
    (iii) Has registered the FFI with the IRS;
    (iv) Agrees to perform, on behalf of the FFI, all due diligence, 
withholding, reporting, and other requirements that the FFI would have 
been required to perform if it were a participating FFI;
    (v) Identifies the FFI in all reporting completed on the FFI's 
behalf to the extent required under Sec. Sec.  1.1471-4(d)(2)(ii)(C) 
and 1.1474-1; and
    (vi) Has not had its status as a sponsor revoked.
    (4) The IRS may revoke a sponsoring entity's status as a sponsor 
with respect to all sponsored FFIs if there is a material failure by 
the sponsoring entity to comply with its obligations under paragraph 
(f)(1)(i)(F)(3) of this section with respect to any sponsored FFI.
    (5) A sponsored FFI will remain liable for any failure of its 
sponsoring entity to comply with the obligations contained in paragraph 
(f)(1)(i)(F)(3) of this section that the sponsoring entity has agreed 
to undertake on behalf of the FFI.
    (ii) Procedural requirements for registered deemed-compliant FFIs. 
A registered deemed-compliant FFI described in paragraph (f)(1)(i)(A) 
through (E) of this section may use one or more agents to perform the 
necessary due diligence to identify its account holders and to take any 
required action associated with obtaining and maintaining its deemed-
compliant status. The FFI, however, remains responsible for ensuring 
that the requirements for its deemed-compliant status are met. Unless 
otherwise provided in this section, a registered deemed-compliant FFI 
described in paragraph (f)(1)(i)(A) through (E) of this section is 
required to--
    (A) Register with the IRS pursuant to procedures prescribed by the 
IRS and agree to comply with the terms of its registered deemed-
compliant status.
    (B) Have its responsible officer certify every three years to the 
IRS, either individually or collectively for the FFI's expanded 
affiliated group, that all of the requirements for the deemed-compliant 
category claimed by the FFI have been satisfied since the later of the 
date the FFI registers as a deemed-compliant FFI or December 31, 2013;
    (C) Maintain in its records the confirmation from the IRS of the 
FFI's registration as a deemed-compliant FFI and GIIN or such other 
information as the IRS specifies in forms or other guidance; and
    (D) Agree to notify the IRS if there is a change in circumstances 
that would make the FFI ineligible for the deemed-compliant status for 
which it has registered, and to do so within six months of the change 
in circumstances unless the FFI is able to resume its eligibility for 
its registered-deemed compliant status within the six month 
notification period.
    (iii) Deemed-compliant FFI that is merged or acquired. A deemed-
compliant FFI that becomes a participating FFI or a member of a 
participating FFI group as a result of a merger or acquisition will not 
be required to redetermine the chapter 4 status of any account 
maintained by the FFI prior to the date of the merger or acquisition 
unless that account has a subsequent change in circumstances.
    (2) Certified deemed-compliant FFIs. A certified deemed-compliant 
FFI means an FFI described in any of paragraphs (f)(2)(i) through (iv) 
of this section that has certified as to its status as a deemed-
compliant FFI by providing a withholding agent with the documentation 
described in Sec.  1.1471-3(d)(6) applicable to the relevant deemed-
compliant category. An FFI that is described in paragraph (f)(2)(iv) of 
this section (a limited life debt investment entity) will be treated as 
a

[[Page 5973]]

certified deemed-compliant FFI prior to January 1, 2017. A certified 
deemed-compliant FFI also includes any nonreporting IGA FFI. A 
certified deemed-compliant FFI is not required to register with the 
IRS.
    (i) Nonregistering local bank. An FFI is described in this 
paragraph (f)(2)(i) if the FFI meets the following requirements.
    (A) The FFI operates solely as (and is licensed and regulated under 
the laws of its country of incorporation or organization as)--
    (1) A bank; or
    (2) A credit union or similar cooperative credit organization that 
is operated without profit.
    (B) The FFI's business consists primarily of receiving deposits 
from and making loans to unrelated retail customers.
    (C) The FFI does not have a fixed place of business outside its 
country of incorporation or organization. For this purpose, a fixed 
place of business does not include a location that is not advertised to 
the public and from which the FFI performs solely administrative 
support functions.
    (D) The FFI does not solicit customers or account holders outside 
its country of incorporation or organization. For this purpose, an FFI 
will not be considered to have solicited customers or account holders 
outside its country of incorporation or organization merely because it 
operates a Web site, provided that the Web site does not permit account 
opening, does not indicate that the FFI maintains accounts for or 
provides services to nonresidents, and does not otherwise target or 
solicit U.S. customers or account holders. An FFI will also not be 
considered to have solicited customers or account holders outside its 
country of incorporation or organization merely because it advertises 
in print media or on a radio or television station that is distributed 
or aired primarily within its country of incorporation or organization 
but is also incidentally distributed or aired in other countries, 
provided that the advertisement does not indicate that the FFI 
maintains accounts for or provides services to nonresidents and does 
not otherwise target or solicit U.S. customers or account holders.
    (E) The FFI does not have more than $175 million in assets on its 
balance sheet and, if the FFI is a member of an expanded affiliated 
group, the group does not have more than $500 million in total assets 
on its consolidated or combined balance sheets.
    (F) With respect to an FFI that is part of an expanded affiliated 
group, each member of the expanded affiliated group is incorporated or 
organized in the same country and does not have a fixed place of 
business outside of that country. For this purpose, a fixed place of 
business does not include a location that is not advertised to the 
public and from which the FFI performs solely administrative support 
functions. Further, each FFI in the group, other than an FFI described 
in paragraph (f)(2)(ii) of this section or Sec.  1.1471-6(f), meets the 
requirements set forth in this paragraph (f)(2)(i). For this purpose, a 
fixed place of business does not include a location that is not 
advertised to the public and from which the FFI performs solely 
administrative support functions.
    (ii) FFIs with only low-value accounts. An FFI is described in this 
paragraph (f)(2)(ii) if the FFI meets the following requirements:
    (A) The FFI is not an investment entity.
    (B) No financial account maintained by the FFI (or, in the case of 
an FFI that is a member of an expanded affiliated group, by any member 
of the expanded affiliated group) has a balance or value in excess of 
$50,000. The balance or value of a financial account shall be 
determined by applying the rules described in paragraph (b)(4) of this 
section, substituting the term financial account for the term 
depository account and the term person for the term individual.
    (C) The FFI does not have more than $50 million in assets on its 
balance sheet as of the end of its most recent accounting year. In the 
case of an FFI that is a member of an expanded affiliated group, the 
entire expanded affiliated group does not have more than $50 million in 
assets on its consolidated or combined balance sheet as of the end of 
its most recent accounting year.
    (iii) Sponsored, closely held investment vehicles. Subject to the 
provisions of paragraph (f)(2)(iii)(F) of this section, an FFI is 
described in this paragraph (f)(2)(iii) if it meets the requirements 
described in paragraphs (f)(2)(iii)(A) through (E) of this section.
    (A) The FFI is an FFI solely because it is an investment entity and 
is not a QI, WP, or WT.
    (B) The FFI has a contractual arrangement with a sponsoring entity 
that is a participating FFI, reporting Model 1 FFI, or U.S. financial 
institution and that is authorized to manage the FFI and enter into 
contracts on behalf of the FFI (such as a professional manager, 
trustee, or managing partner), under which the sponsoring entity agrees 
to fulfill all due diligence, withholding, and reporting 
responsibilities that the FFI would have assumed if it were a 
participating FFI.
    (C) The FFI does not hold itself out as an investment vehicle for 
unrelated parties.
    (D) Twenty or fewer individuals own all of the debt and equity 
interests in the FFI (disregarding debt interests owned by 
participating FFIs, registered deemed-compliant FFIs, and certified 
deemed-compliant FFIs and equity interests owned by an entity if that 
entity owns 100 percent of the equity interests in the FFI and is 
itself a sponsored FFI under this paragraph (f)(2)(iii)).
    (E) The sponsoring entity complies with the following 
requirements--
    (1) The sponsoring entity has registered with the IRS as a 
sponsoring entity;
    (2) The sponsoring entity agrees to perform, on behalf of the FFI, 
all due diligence, withholding, reporting, and other requirements that 
the FFI would have been required to perform if it were a participating 
FFI and retains documentation collected with respect to the FFI for a 
period of six years;
    (3) The sponsoring entity identifies the FFI in all reporting 
completed on the FFI's behalf to the extent required under Sec. Sec.  
1.1471-4(d)(2)(ii)(C) and 1.1474-1; and
    (4) The sponsoring entity has not had its status as a sponsor 
revoked.
    (F) The IRS may revoke a sponsoring entity's status as a sponsor 
with respect to all sponsored FFIs if there is a material failure by 
the sponsoring entity to comply with its obligations under paragraph 
(f)(2)(iii)(E) of this section with respect to any sponsored FFI. A 
sponsored FFI will remain liable for any failure of its sponsoring 
entity to comply with the obligations contained in paragraph 
(f)(2)(iii)(E) of this section that the sponsoring entity has agreed to 
undertake on behalf of the FFI.
    (iv) Limited life debt investment entities (transitional). An FFI 
is described in this paragraph (f)(2)(iv) if the FFI is the beneficial 
owner of the payment (or of payments made with respect to the account) 
and the FFI meets the following requirements. An FFI that meets the 
requirements of this paragraph (f)(2)(iv) will be treated as a 
certified deemed-compliant FFI prior to January 1, 2017.
    (A) The FFI is a collective investment vehicle formed pursuant to a 
trust indenture or similar fiduciary arrangement that is an FFI solely 
because it is an investment entity that offers interests primarily to 
unrelated investors.
    (B) The FFI was in existence as of December 31, 2011, and the FFI's 
organizational documents require that the entity liquidate on or prior 
to a set

[[Page 5974]]

date, and do not permit amendments to the organizational documents, 
including the trust indenture, without the agreement of all of the 
FFI's investors.
    (C) The FFI was formed for the purpose of purchasing (and did in 
fact purchase) specific types of indebtedness and holding those assets 
(subject to reinvestment only under prescribed circumstances) until the 
termination of the asset or the vehicle.
    (D) All payments made to the investors of the FFI are cleared 
through a clearing organization that is a participating FFI, reporting 
Model 1 FFI, or U.S. financial institution or made through a trustee 
that is a participating FFI, reporting Model 1 FFI, or U.S. financial 
institution.
    (E) The FFI's trust indenture or similar fiduciary arrangement only 
authorizes the trustee or fiduciary to engage in activities 
specifically designated in the trust indenture, and the trustee or 
fiduciary is not authorized through a fiduciary duty or otherwise to 
fulfill the obligations that a participating FFI is subject to under 
Sec.  1.1471-4 absent a legal requirement to fulfill them, even if the 
consequence of the trustee failing to fulfill these obligations is to 
cause the FFI to be withheld upon. Further, no other person has the 
authority to fulfill the obligations that a participating FFI is 
subject to under Sec.  1.1471-4 on behalf of the FFI.
    (3) Owner-documented FFIs--(i) In general. An owner-documented FFI 
means an FFI that meets the requirements of paragraph (f)(3)(ii) of 
this section. An FFI may only be treated as an owner-documented FFI 
with respect to payments received from and accounts held with a 
designated withholding agent (or with respect to payments received from 
and accounts held with another FFI that is also treated as an owner-
documented FFI by such designated withholding agent). A designated 
withholding agent is a U.S. financial institution, participating FFI, 
or reporting Model 1 FFI that agrees to undertake the additional due 
diligence and reporting required under paragraphs (f)(3)(ii)(D) and (E) 
of this section in order to treat the FFI as an owner-documented FFI. 
An FFI meeting the requirements of this paragraph (f)(3) will only be 
treated as a deemed-compliant FFI with respect to a payment or account 
for which it does not act as an intermediary.
    (ii) Requirements of owner-documented FFI status. An FFI meets the 
requirements of this paragraph (f)(3)(ii) only if--
    (A) The FFI is an FFI solely because it is an investment entity;
    (B) The FFI is not owned by or in an expanded affiliated group with 
any FFI that is a depository institution, custodial institution, or 
specified insurance company;
    (C) The FFI does not maintain a financial account for any 
nonparticipating FFI;
    (D) The FFI provides the designated withholding agent with all of 
the documentation described in Sec.  1.1471-3(d)(6) and agrees to 
notify the withholding agent if there is a change in circumstances; and
    (E) The designated withholding agent agrees to report to the IRS 
(or, in the case of a reporting Model 1 FFI, to the relevant foreign 
government or agency thereof) all of the information described in Sec.  
1.1471-4(d) or Sec.  1.1474-1(i) (as appropriate) with respect to any 
specified U.S. persons that are identified in Sec.  1.1471-
3(d)(6)(iv)(A)(1). Notwithstanding the previous sentence, the 
designated withholding agent is not required to report information with 
respect to an indirect owner of the FFI that holds its interest through 
a participating FFI, a deemed-compliant FFI (other than an owner-
documented FFI), an entity that is a U.S. person, an exempt beneficial 
owner, or an excepted NFFE.
    (4) Definition of a restricted distributor. An entity is a 
restricted distributor for purposes of paragraph (f)(1)(i)(D) of this 
section (relating to registered deemed-compliant restricted funds) if 
it operates as a distributor that holds debt or equity interests in a 
restricted fund as a nominee and meets the following requirements.
    (i) The distributor provides investment services to at least 30 
unrelated customers and less than half of the distributor's customers 
are related persons.
    (ii) The distributor is required to perform AML due diligence 
procedures under the anti-money laundering laws of its country of 
incorporation or organization (which must be a FATF-compliant 
jurisdiction).
    (iii) The distributor operates solely in its country of 
incorporation or organization, does not have a fixed place of business 
outside that country, and, if such distributor belongs to an expanded 
affiliated group, has the same country of incorporation or organization 
as all other members of its expanded affiliated group. For this 
purpose, a fixed place of business does not include a location that is 
not advertised to the public and from which the FFI performs solely 
administrative support functions.
    (iv) The distributor does not solicit customers or account holders 
outside its country of incorporation or organization. For this purpose, 
a distributor will not be considered to have solicited customers or 
account holders outside its country of organization merely because it 
operates a Web site, provided that the Web site does not permit account 
opening by persons identified as nonresidents, does not specifically 
state that nonresidents may acquire securities from the distributor, 
and does not otherwise target U.S. customers or account holders. A 
distributor will also not be considered to have solicited customers or 
account holders outside its country of incorporation or organization 
merely because it advertises in print media or on a radio or television 
station that is distributed or aired primarily within its country of 
incorporation or organization but is also incidentally distributed or 
aired in other countries, provided that the advertisement does not 
indicate that the distributor maintains accounts for or provides 
services to nonresidents and does not otherwise target or solicit U.S. 
customers or account holders.
    (v) The distributor does not have more than $175 million in total 
assets under management and has no more than $7 million in gross 
revenue on its income statement for the most recent financial 
accounting year and, if the distributor belongs to an expanded 
affiliated group, the entire group does not have more than $500 million 
in total assets under management or more than $20 million in gross 
revenue for its most recent financial accounting year on a combined or 
consolidated income statement.
    (vi) The distributor provides the restricted fund (or another 
distributor of the restricted fund that is a participating FFI or 
registered deemed-compliant FFI, and with which the distributor has 
entered into its distribution agreement) with a valid Form W-8 
indicating that the distributor satisfies the requirements to be a 
restricted distributor.
    (vii) The agreement governing the distributor's distribution of 
debt or equity interests of the restricted fund--
    (A) Prohibits the distributor from distributing any securities to 
specified U.S. persons, passive NFFEs that have one or more substantial 
U.S. owners, and nonparticipating FFIs;
    (B) Requires that if the distributor does distribute securities to 
any of the persons described in this paragraph (f)(4)(vii), it will 
cause the restricted fund to redeem or retire those interests, or it 
will transfer those interests to a distributor that is a participating 
FFI or reporting Model 1 FFI, within six months and the commission paid 
to the distributor will be forfeited to the restricted fund or to the 
participating

[[Page 5975]]

FFI to which those interests are transferred; and
    (C) Requires the distributor to notify the restricted fund (or 
another distributor of the restricted fund that is a participating FFI, 
reporting Model 1 FFI, or registered deemed-compliant FFI and with 
which the distributor has entered into its distribution agreement) of a 
change in the distributor's chapter 4 status within 90 days of the 
change in status.
    (viii) With respect to sales after December 31, 2011, and prior to 
the time the restrictions described in paragraph (f)(4)(vii) of this 
section were incorporated into the distribution agreement, either the 
agreement governing the distributor's distribution of debt or equity 
interests of the relevant FFI contained a prohibition of the sale of 
such securities to U.S. entities or U.S. resident individuals, or the 
distributor reviews all accounts relating to such sales in accordance 
with the procedures (and time frames) described in Sec.  1.1471-4(c) 
applicable to preexisting accounts and certifies that it has caused the 
restricted fund to redeem or retire, or it has transferred all 
securities sold to any of the persons described in paragraph 
(f)(4)(vii) of this section. If the distribution agreement addressed in 
the prior sentence contained only a prohibition on the sale of 
securities to U.S. resident individuals, the distributor will not be 
required to review the individual accounts relating to such sales but 
must review and make certifications with respect to all entity accounts 
in the manner described in the previous sentence.
    (g) Recalcitrant account holders--(1) Scope. This paragraph (g) 
provides rules for determining when an account holder of a 
participating FFI or registered deemed-compliant FFI is a recalcitrant 
account holder. Paragraph (g)(2) of this section defines the term 
recalcitrant account holder. Paragraphs (g)(3) and (4) of this section 
provide timing rules for when an account holder will begin to be 
treated as a recalcitrant account holder by a participating FFI and 
when an account holder will cease to be treated as a recalcitrant 
account holder by such institution. For rules for determining the 
holder of an account, see paragraph (a)(3) of this section. For the 
withholding requirements of an FFI with respect to its recalcitrant 
account holders, see paragraph (f) of this section and Sec.  1.1471-
4(b). For the reporting requirements of an FFI with respect to its 
recalcitrant account holders, see Sec.  1.1471-4(d)(6), and, for the 
reporting required with respect to payments made to such account 
holders, see Sec.  1.1474-1(d)(4)(iii). The rules provided in this 
paragraph (g) to classify certain account holders as recalcitrant 
account holders shall not, however, apply to a U.S. branch of a 
participating FFI. Instead, a U.S. branch of a participating FFI or 
registered deemed-compliant FFI that is treated as a U.S. person shall 
apply the presumption rules of Sec.  1.1471-3(f) (for foreign entity 
account holders) and chapter 3 or 61 (for individual payees) to 
determine the status of a payee if it cannot reliably associate a 
reportable payment made to the payee with valid documentation.
    (2) Recalcitrant account holder. The term recalcitrant account 
holder means any holder of an account maintained by an FFI if such 
account holder is not an FFI (or presumed to be an FFI under Sec.  
1.1471-3(f)), the account does not meet the requirements of the 
exception to U.S. account status described in paragraph (a)(4) of this 
section (for depository accounts with a balance of $50,000 or less) and 
does not qualify for any of the exceptions from the documentation 
requirements described in Sec.  1.1471-4(c)(3)(iii), (c)(4)(iii), 
(c)(5)(iii), (c)(5)(iv)(E) (or the participating FFI elects to forego 
such exceptions) and--
    (i) The account holder fails to comply with requests by the FFI for 
the documentation or information that is required under Sec.  1.1471-
4(c) for determining the status of such account as a U.S. account or 
other than a U.S. account;
    (ii) The account holder fails to provide a valid Form W-9 upon 
request from the FFI or fails to provide a correct name and TIN 
combination upon request from the FFI when the FFI has received notice 
from the IRS indicating that the name and TIN combination reported by 
the FFI for the account holder is incorrect;
    (iii) If foreign law would (but for a waiver) prevent reporting by 
the FFI (or branch or division thereof) of the information described in 
Sec.  1.1471-4(d)(3) or (5) with respect to such account, the account 
holder (or substantial U.S. owner of an account holder that is a U.S. 
owned foreign entity) fails to provide a valid and effective waiver to 
permit such reporting; or
    (iv) The account holder provides the documentation described in 
Sec.  1.1471-3(d)(12) to establish its status as a passive NFFE (other 
than a WP or WT) but fails to provide the information regarding its 
owners required under Sec.  1.1471-3(d)(12)(iii).
    (3) Start of recalcitrant account holder status--(i) Preexisting 
accounts identified under the procedures described in Sec.  1.1471-4(c) 
for identifying U. S. accounts--(A) In general. An account holder of a 
preexisting account described in paragraph (g)(2) of this section 
maintained by a participating FFI will be treated as a recalcitrant 
account holder beginning on the dates provided in paragraphs (g)(3)(B) 
through (D) of this section. An account holder of a preexisting account 
described in paragraph (g)(2) of this section that is maintained by a 
registered deemed-compliant FFI will be treated as a recalcitrant 
account holder beginning on the dates provided in paragraph (f) of this 
section (setting forth the time by which the FFI must identify its 
accounts in accordance with the requirements of Sec.  1.1471-4(c) in 
order to meet the requirements of its applicable registered deemed-
compliant status).
    (B) Accounts other than high-value accounts. Account holders of 
preexisting accounts maintained by a participating FFI that are not 
high-value accounts (as described in Sec.  1.1471-4(c)(8)) and that are 
described in paragraph (g)(2) of this section will be treated as 
recalcitrant account holders beginning on the date that is two years 
after the effective date of the FFI agreement.
    (C) High-value accounts. Account holders of preexisting accounts 
maintained by a participating FFI that are high-value accounts (as 
described in Sec.  1.1471-4(c)(5)(iv)(D)) and that are described in 
paragraph (g)(2) of this section will be treated as recalcitrant 
account holders beginning on the date that is one year after the 
effective date of the FFI agreement.
    (D) Preexisting accounts that become high-value accounts. With 
respect to a calendar year beginning after the later of the effective 
date of the FFI agreement and December 31, 2014, an account holder that 
is described in paragraph (g)(2) of this section and that holds a 
preexisting account that a participating FFI identifies as a high-value 
account pursuant to Sec.  1.1471-4(c)(5)(iv)(D) will be treated as a 
recalcitrant account holder beginning on the earlier of the date a 
withholdable payment is made to the account following the calendar year 
end in which the account is identified as a high-value account or the 
date that is six months after the calendar year end.
    (ii) Accounts that are not preexisting accounts and accounts 
requiring name/TIN correction. An account holder of an account that is 
not a preexisting account and that is described in paragraph (g)(2) of 
this section will be treated as a recalcitrant account holder beginning 
on the earlier of the date a withholdable payment or a foreign passthru 
payment

[[Page 5976]]

is made to the account or 90 days after the date the account is opened 
by the participating FFI. An account holder for which the participating 
FFI received a notice from the IRS indicating that the name and TIN 
combination provided for the account holder is incorrect will be 
treated as a recalcitrant account holder following the date of such 
notice within the time prescribed in Sec.  31.3406(d)-5(a) of this 
chapter.
    (iii) Accounts with changes in circumstances. An account holder 
holding an account that is described in paragraph (g)(2) of this 
section following a change in circumstances (other than a change in 
account balance or value in a subsequent year that causes an individual 
account to be identified as a high-value account) will be treated as a 
recalcitrant account holder beginning on the earlier of the date a 
withholdable payment or a foreign passthru payment is made to the 
account or the date that is 90 days after the change in circumstances. 
For the definition of a change in circumstances with respect to an 
account, see Sec.  1.1471-4(c)(2)(iii).
    (4) End of recalcitrant account holder status. An account holder 
that is treated as a recalcitrant account holder under paragraphs 
(g)(2) and (3) of this section will cease to be so treated as of the 
date on which the account holder is no longer described in paragraph 
(g)(2) of this section.
    (h) Passthru payment--(1) Defined. The term passthru payment means 
any withholdable payment and any foreign passthru payment.
    (2) Foreign passthru payment. [Reserved].
    (i) Expanded affiliated group--(1) Scope of paragraph. This 
paragraph (i) defines the term expanded affiliated group for purposes 
of chapter 4. For the requirements of a participating FFI with respect 
to members of its expanded affiliated group that are FFIs, see Sec.  
1.1471-4(e).
    (2) Expanded affiliated group defined--(i) In general. Except as 
otherwise provided in this paragraph (i), an expanded affiliated group 
means an affiliated group as defined in section 1504(a), determined--
    (A) By substituting ``more than 50 percent'' for ``at least 80 
percent'' each place it appears;
    (B) Without regard to paragraphs (2) and (3) of section 1504(b);
    (C) Without application of section 1504(a)(3); and
    (D Without application of Sec.  1.1504-4(b)(2)(i)(A).
    (ii) Partnerships and entities other than corporations. A 
partnership or any entity other than a corporation shall be treated as 
a member of an expanded affiliated group if such entity is controlled 
(within the meaning of section 954(d)(3), without regard to whether 
such entity is foreign or domestic) by members of such group (including 
any entity treated as a member of such group by reason of this 
sentence).
    (3) Exception for FFIs holding certain capital investments. 
Notwithstanding paragraph (i)(2) of this section, an investment entity 
will not be considered a member of an expanded affiliated group as a 
result of a contribution of seed capital by a member of such expanded 
affiliated group if--
    (i) The member that owns the investment entity is an FFI that is in 
the business of providing seed capital to form investment entities, the 
interests in which it intends to sell to unrelated investors;
    (ii) The investment entity is created in the ordinary course of 
such other FFI's business described in paragraph (i)(3)(i) of this 
section;
    (iii) As of the date the FFI acquired the equity interest, any 
equity interest in the investment entity in excess of 50 percent of the 
total value of the stock of the investment entity is intended to be 
held by such other FFI (including ownership by other members of such 
other FFI's expanded affiliated group) for no more than three years 
from the date on which such other FFI first acquired an equity interest 
in the investment entity; and
    (iv) In the case of an equity interest that has been held by such 
other FFI for over three years from the date referenced in paragraph 
(i)(3)(iii) of this section, the aggregate value of the equity interest 
held by such other FFI and the equity interests held by other members 
of its expanded affiliated group is 50 percent or less of the total 
value of the stock of the investment entity.
    (4) Seed capital. For purposes of this paragraph (i), the term seed 
capital means an initial capital contribution made to an investment 
entity that is intended as a temporary investment and is deemed by the 
manager of the entity to be necessary or appropriate for the 
establishment of the entity, such as for the purpose of establishing a 
track record of investment performance for such entity, achieving 
economies of scale for diversified investment, avoiding an artificially 
high expense to return ratio, or similar purposes.
    (5) Anti-abuse rule. A change in ownership, voting rights, or the 
form of an entity that results in an entity meeting or not meeting the 
ownership requirements described in paragraph (i)(2) of this section 
will be disregarded for purposes of determining whether an entity is a 
member of an expanded affiliated group if the change is pursuant to a 
plan a principal purpose of which is to avoid reporting or withholding 
that would otherwise be required under any chapter 4 provision. For 
purposes of this paragraph (i)(5), a change in voting rights includes a 
separation of voting rights and value.
    (j) Effective/applicability date. This section generally applies on 
January 28, 2013. For other dates of applicability, see Sec.  1.1471-
5(f)(2)(iv).

0
Par. 10. Section 1.1471-6 is added to read as follows:


Sec.  1.1471-6  Payments beneficially owned by exempt beneficial 
owners.

    (a) In general. This section describes classes of beneficial owners 
that are identified in section 1471(f) (exempt beneficial owners). 
Except as otherwise provided in paragraphs (d) (regarding securities 
held by foreign central banks of issue) and (f) (regarding retirement 
funds) of this section, a person must be a beneficial owner of a 
payment to be treated as an exempt beneficial owner with respect to the 
payment. The following classes of persons are exempt beneficial owners: 
any foreign government, any political subdivision of a foreign 
government, or any wholly owned agency or instrumentality of any one or 
more of the foregoing described in paragraph (b) of this section; any 
international organization or any wholly owned agency or 
instrumentality thereof described in paragraph (c) of this section; any 
foreign central bank of issue described in paragraph (d) of this 
section; any government of a U.S. territory described in paragraph (e) 
of this section; certain foreign retirement funds described in 
paragraph (f) of this section; and certain entities described in 
paragraph (g) of this section that are wholly owned by one or more 
other exempt beneficial owners. In addition, an exempt beneficial owner 
includes any person treated as an exempt beneficial owner pursuant to a 
Model 1 IGA or Model 2 IGA. See Sec. Sec.  1.1471-2(a)(4)(v) and 
1.1472-1(c)(2) for the exemptions from withholding for payments 
beneficially owned by an exempt beneficial owner; Sec.  1.1471-3(d)(9) 
for the documentation requirements applicable to a withholding agent 
for purposes of determining when a withholdable payment is beneficially 
owned by an exempt beneficial owner; and Sec.  1.1471-3(d)(8)(ii) for 
when a withholding agent may treat a payment made to a nonparticipating 
FFI as beneficially owned by an exempt beneficial owner.
    (b) Any foreign government, any political subdivision of a foreign

[[Page 5977]]

government, or any wholly owned agency or instrumentality of any one or 
more of the foregoing. Solely for purposes of this section and except 
as provided in paragraph (h) of this section, the term any foreign 
government, any political subdivision of a foreign government, or any 
wholly owned agency or instrumentality of any one or more of the 
foregoing means only the integral parts, controlled entities, and 
political subdivisions of a foreign sovereign.
    (1) Integral part. Solely for purposes of this paragraph (b), an 
integral part of a foreign sovereign is any person, body of persons, 
organization, agency, bureau, fund, instrumentality, or other body, 
however designated, that constitutes a governing authority of a foreign 
country. The net earnings of the governing authority must be credited 
to its own account or to other accounts of the foreign sovereign, with 
no portion inuring to the benefit of any private person as defined in 
paragraph (b)(3) of this section. An integral part does not include any 
individual who is a sovereign, official, or administrator acting in a 
private or personal capacity. All the facts and circumstances will be 
taken into account in determining whether an individual is acting in a 
private or personal capacity.
    (2) Controlled entity. Solely for purposes of this paragraph (b), a 
controlled entity means an entity that is separate in form from a 
foreign sovereign or that otherwise constitutes a separate juridical 
entity, provided that--
    (i) The entity is wholly owned and controlled by one or more 
foreign sovereigns directly or indirectly through one or more 
controlled entities;
    (ii) The entity's net earnings are credited to its own account or 
to other accounts of one or more foreign sovereigns, with no portion of 
its income inuring to the benefit of any private person as defined in 
paragraph (b)(3) of this section; and
    (iii) The entity's assets vest in one or more foreign sovereigns 
upon dissolution.
    (3) Inurement to the benefit of private persons. Solely for 
purposes of this paragraph (b)--
    (i) Income does not inure to the benefit of private persons if such 
persons (within the meaning of section 7701(a)(1)) are the intended 
beneficiaries of a governmental program carried on by a foreign 
sovereign, and the program activities constitute governmental functions 
under the regulations under section 892.
    (ii) Income is considered to inure to the benefit of private 
persons if such income benefits--
    (A) Private persons through the use of a governmental entity as a 
conduit for personal investment;
    (B) Private persons through the use of a governmental entity to 
conduct a commercial business, such as a commercial banking business, 
that provides financial services to private persons; or
    (C) Private persons who divert such income from its intended use by 
exerting influence or control through means explicitly or implicitly 
approved of by the foreign sovereign.
    (c) Any international organization or any wholly owned agency or 
instrumentality thereof. Except as provided in paragraph (h) of this 
section, the term any international organization or any wholly owned 
agency or instrumentality thereof means any entity described in section 
7701(a)(18). The term also includes any intergovernmental or 
supranational organization--
    (1) That is comprised primarily of foreign governments;
    (2) That is recognized as an intergovernmental or supranational 
organization under a foreign law similar to 22 U.S.C. 288-288f or that 
has in effect a headquarters agreement with a foreign government; and
    (3) Whose income does not inure to the benefit of private persons 
under the principles of paragraph (b)(3)(ii) of this section, as 
applied to the intergovernmental or supranational organization in place 
of the government or governmental entity.
    (d) Foreign central bank of issue--(1) In general. Solely for 
purposes of this section and except as provided in paragraph (h) of 
this section, the term foreign central bank of issue means a bank that 
is by law or government sanction the principal authority, other than 
the government itself, issuing instruments intended to circulate as 
currency. Such a bank is generally the custodian of the banking 
reserves of the country under whose law it is organized.
    (2) Separate instrumentality. A foreign central bank of issue may 
include an instrumentality that is separate from a foreign government, 
whether or not owned in whole or in part by a foreign government. For 
example, foreign banks organized along the lines of, and performing 
functions similar to, the Federal Reserve System qualify as foreign 
central banks of issue for purposes of this section.
    (3) Bank for International Settlements. The Bank for International 
Settlements is a foreign central bank of issue for purposes of this 
section.
    (4) Income on certain collateral. Solely for purposes of 
determining whether an entity is an exempt beneficial owner of a 
payment under this paragraph (d), a foreign central bank of issue is a 
beneficial owner with respect to income earned on securities, including 
securities held as collateral or in connection with a securities 
lending transaction, held by the foreign central bank of issue in the 
normal course of its operations as a central bank of issue.
    (e) Governments of U.S. territories. Except as provided in 
paragraph (h) of this section, whether a person or entity constitutes a 
government of a U.S. territory for purposes of this section is 
determined by applying principles analogous to those set forth in 
paragraph (b) of this section.
    (f) Certain retirement funds. A fund is described in this paragraph 
(f) if it is described in paragraphs (f)(1) through (6) of this 
section. In addition, if a withholding agent may treat a withholdable 
payment as made to a payee that is a retirement fund in accordance with 
Sec.  1.1471-3, then the withholding agent may also treat such 
retirement fund as the beneficial owner of the payment. See Sec.  
1.1471-3(d)(9)(ii).
    (1) Treaty-qualified retirement fund. A fund established in a 
country with which the United States has an income tax treaty in force, 
provided that the fund is entitled to benefits under such treaty on 
income that it derives from sources within the United States (or would 
be entitled to such benefits if it derived any such income) as a 
resident of the other country that satisfies any applicable limitation 
on benefits requirement, and is operated principally to administer or 
provide pension or retirement benefits;
    (2) Broad participation retirement fund. A fund established to 
provide retirement, disability, or death benefits, or any combination 
thereof, to beneficiaries that are current or former employees (or 
persons designated by such employees) of one or more employers in 
consideration for services rendered, provided that the fund--
    (i) Does not have a single beneficiary with a right to more than 
five percent of the fund's assets;
    (ii) Is subject to government regulation and provides annual 
information reporting about its beneficiaries to the relevant tax 
authorities in the country in which the fund is established or 
operates; and
    (iii) Satisfies one or more of the following requirements--
    (A) The fund is generally exempt from tax on investment income 
under the laws of the country in which it is

[[Page 5978]]

established or operates due to its status as a retirement or pension 
plan;
    (B) The fund receives at least 50 percent of its total 
contributions (other than transfers of assets from accounts described 
in Sec.  1.1471-5(b)(2)(i)(A) (referring to retirement and pension 
accounts) or from other plans described in this paragraph (f)) from the 
sponsoring employers;
    (C) Distributions or withdrawals from the fund are allowed only 
upon the occurrence of specified events related to retirement, 
disability, or death (except rollover distributions to accounts 
described in Sec.  1.1471-5(b)(2)(i)(A) (referring to retirement and 
pension accounts) or other retirement funds described in this paragraph 
(f)), or penalties apply to distributions or withdrawals made before 
such specified events; or
    (D) Contributions (other than certain permitted make-up 
contributions) by employees to the fund are limited by reference to 
earned income of the employee or may not exceed $50,000 annually.
    (3) Narrow participation retirement funds. A fund established to 
provide retirement, disability, or death benefits to beneficiaries that 
are current or former employees (or persons designated by such 
employees) of one or more employers in consideration for prior services 
rendered, provided that--
    (i) The fund has fewer than 50 participants;
    (ii) The fund is sponsored by one or more employers that are not 
investment entities or passive NFFEs;
    (iii) Employee and employer contributions to the fund (other than 
transfers of assets from other funds described in paragraph (f)(1) of 
this section or accounts described in Sec.  1.1471-5(b)(2)(i)(A) 
(referring to retirement and pension accounts)) are limited by 
reference to earned income and compensation of the employee, 
respectively;
    (iv) Participants that are not residents of the country in which 
the fund is established or operated are not entitled to more than 20 
percent of the fund's assets; and
    (v) The fund is subject to government regulation and provides 
annual information reporting about its beneficiaries to the relevant 
tax authorities in the country in which the fund is established or 
operates.
    (4) Fund formed pursuant to a plan similar to a section 401(a) 
plan. A fund formed pursuant to a pension plan that would meet the 
requirements of section 401(a), other than the requirement that the 
plan be funded by a trust created or organized in the United States.
    (5) Investment vehicles exclusively for retirement funds. A fund 
established exclusively to earn income for the benefit of one or more 
retirement funds described in paragraphs (f)(1) through (5) of this 
section or accounts described in Sec.  1.1471-5(b)(2)(i)(A) (referring 
to retirement and pension accounts).
    (6) Pension fund of an exempt beneficial owner. A fund established 
and sponsored by an exempt beneficial owner described in paragraph (b), 
(c), (d), or (e) of this section to provide retirement, disability, or 
death benefits to beneficiaries or participants that are current or 
former employees of the exempt beneficial owner (or persons designated 
by such employees), or that are not current or former employees, but 
the benefits provided to such beneficiaries or participants are in 
consideration of personal services performed for the exempt beneficial 
owner.

    (7) Example. FP, a foreign pension fund established in Country 
X, is generally exempt from income taxation in Country X, and is 
operated principally to provide retirement benefits in such country. 
The U.S.-Country X income tax treaty is identical in all material 
respects to the 2006 U.S. model income tax convention. FP is a 
resident of Country X under Article 4(2)(a) and a qualified person 
under Article 22(2)(d) of the U.S.-Country X income tax treaty. 
Therefore, FP is a pension fund described in paragraph (f)(1) of 
this section.

    (g) Entities wholly owned by exempt beneficial owners. A person is 
described in this paragraph (g) if it is an FFI solely because it is an 
investment entity, each direct holder of an equity interest in the 
investment company is an exempt beneficial owner described in paragraph 
(b), (c), (d), (e), (f), or (g) of this section, and each direct holder 
of a debt interest in the investment entity is either a depository 
institution (with respect to a loan made to such entity) or an exempt 
beneficial owner described in paragraph (b), (c), (d), (e), (f), or (g) 
of this section.
    (h) Exception for commercial activities--(1) General rule. An 
exempt beneficial owner described in paragraph (b), (c), (d), or (e) of 
this section will not be treated as an exempt beneficial owner with 
respect to a payment that is derived from an obligation held in 
connection with a commercial financial activity of a type engaged in by 
an insurance company, custodial institution, or depository institution 
(including the accepting of deposits). Thus, for example, a central 
bank of issue that conducts a commercial financial activity, such as 
acting as an intermediary on behalf of persons other than in the bank's 
capacity as a central bank of issue, is not an exempt beneficial owner 
under paragraph (d)(1) of this section with respect to payments 
received in connection with an account held in connection with such 
activity.
    (2) Limitation. Paragraph (h)(1) of this section will not apply 
if--
    (i) An entity undertakes commercial financial activity described in 
paragraph (h)(1) of this section solely for or at the direction of 
other exempt beneficial owners and such commercial financial activity 
is consistent with the purposes of the entity;
    (ii) The entity has no outstanding debt that would be a financial 
account under Sec.  1.1471-5(b)(1)(iii); and
    (iii) The entity otherwise maintains financial accounts only for 
exempt beneficial owners.
    (i) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 11. Section 1.1472-1 is added to read as follows:


Sec.  1.1472-1  Withholding on NFFEs.

    (a) In general. This section provides rules that a withholding 
agent must apply to determine its obligations to withhold under section 
1472 on withholdable payments made to a payee that is an NFFE. A 
participating FFI that complies with its withholding obligations under 
Sec.  1.1471-4(b) will be deemed to satisfy its obligations under 
section 1472 with respect to withholdable payments made to NFFEs that 
are account holders. The rules of this section will apply, however, in 
the case of a participating FFI acting as a withholding agent with 
respect to a payment made to an NFFE that is not an account holder (for 
example, a payment with respect to a contract that does not constitute 
a financial account). See Sec.  1.1473-1(a)(4)(vi), however, for rules 
excepting from the definition of withholdable payment certain payments 
of U.S. source FDAP income made prior to January 1, 2017, with respect 
to an offshore obligation.
    (b) Withholdable payments made to an NFFE--(1) In general. Except 
as otherwise provided in paragraph (b)(2) of this section (providing 
transitional relief) or paragraph (c) of this section (providing 
exceptions for payments to an excepted NFFE, a WP or WT, or an exempt 
beneficial owner), a withholding agent must withhold 30 percent of any 
withholdable payment made after December 31, 2013, to a payee that is 
an NFFE unless--
    (i) The beneficial owner of such payment is the NFFE or any other 
NFFE;
    (ii) The withholding agent can, pursuant to paragraph (d) of this 
section, treat the beneficial owner of the payment as an NFFE that does 
not have any substantial U.S. owners, or as an

[[Page 5979]]

NFFE that has identified its substantial U.S. owners; and
    (iii) The withholding agent reports the information described in 
Sec.  1.1474-1(i)(2) relating to any substantial U.S. owners of the 
beneficial owner of such payment.
    (2) Transitional relief. For any withholdable payment made prior to 
January 1, 2015, with respect to a preexisting obligation to a payee 
that is not a prima facie FFI and for which a withholding agent does 
not have documentation indicating the payee's status as a passive NFFE 
with one or more substantial U.S. owners, the withholding agent is not 
required to withhold under this section or report under Sec.  1.1474-
1(i)(2) (describing the reporting obligations of withholding agents 
with respect to NFFEs).
    (c) Exceptions--(1) Beneficial owner that is an excepted NFFE. A 
withholding agent is not required to withhold under section 1472(a) and 
paragraph (b) of this section on a withholdable payment (or portion 
thereof) if the withholding agent can treat the payment as beneficially 
owned by an excepted NFFE. An excepted NFFE means an NFFE that is--
    (i) Publicly traded corporation. A corporation the stock of which 
is regularly traded on one or more established securities markets for 
the calendar year.
    (A) Regularly traded. For purposes of this section, stock of a 
corporation is regularly traded on one or more established securities 
markets for a calendar year if--
    (1) One or more classes of stock of the corporation that, in the 
aggregate, represent more than 50 percent of the total combined voting 
power of all classes of stock of such corporation entitled to vote and 
of the total value of the stock of such corporation are listed on such 
market or markets during the prior calendar year; and
    (2) With respect to each class relied on to meet the more-than-50-
percent listing requirement of paragraph (c)(1)(i)(A)(1) of this 
section--
    (i) Trades in each such class are effected, other than in de 
minimis quantities, on such market or markets on at least 60 days 
during the prior calendar year; and
    (ii) The aggregate number of shares in each such class that are 
traded on such market or markets during the prior year are at least 10 
percent of the average number of shares outstanding in that class 
during the prior calendar year.
    (B) Special rules regarding the regularly traded requirement--(1) 
Year of initial public offering. For the calendar year in which a 
corporation initiates a public offering of a class of stock for trading 
on one or more established securities markets, as defined in paragraph 
(c)(1)(i)(C) of this section, such class of stock meets the 
requirements of this paragraph (c)(1)(i) for such year if the stock is 
regularly traded in more than de minimis quantities on \1/6\ of the 
days remaining after the date of the offering in the quarter during 
which the offering occurs, and on at least 15 days during each 
remaining quarter of the calendar year. If a corporation initiates a 
public offering of a class of stock in the fourth quarter of the 
calendar year, such class of stock meets the requirements of this 
paragraph (c)(1)(i) in the calendar year of the offering if the stock 
is regularly traded on such established securities market, other than 
in de minimis quantities, on the greater of \1/6\ of the days remaining 
after the date of the offering in the quarter during which the offering 
occurs, or 5 days.
    (2) Classes of stock treated as meeting the regularly traded 
requirement. A class of stock meets the trading requirements of this 
paragraph (c)(1)(i) for a calendar year if the stock is traded during 
such year on an established securities market located in the United 
States and is regularly quoted by dealers making a market in the stock. 
A dealer makes a market in a stock only if the dealer regularly and 
actively offers to, and in fact does, purchase the stock from, and sell 
the stock to, customers who are not related persons (as defined in 
section 954(d)(3)) with respect to the dealer in the ordinary course of 
a trade or business.
    (3) Anti-abuse rule. Any trade conducted with a principal purpose 
of meeting the regularly traded requirements of this paragraph 
(c)(1)(i) shall be disregarded. Further, a class of stock shall not be 
treated as regularly traded if there is a pattern of trades conducted 
to meet the requirements of this paragraph (c)(1)(i). Similarly, 
paragraph (c)(1)(i)(B)(1) of this section shall not apply to a public 
offering of stock that has as one of its principal purposes 
qualification of the class of stock as regularly traded under the 
reduced regularly traded requirements for the calendar year of an 
initial public offering. For purposes of applying the immediately 
preceding sentence, consideration will be given to whether the 
regularly traded requirements of this paragraph (c)(1)(i) are satisfied 
in the calendar year immediately following the initial public offering.
    (C) Established securities market--(1) In general. For purposes of 
this paragraph (c)(1)(i), the term established securities market means, 
for any calendar year--
    (i) A foreign securities exchange that is officially recognized, 
sanctioned, or supervised by a governmental authority of the foreign 
country in which the market is located, and has an annual value of 
shares traded on the exchange (or a predecessor exchange) exceeding $1 
billion during each of the three calendar years immediately preceding 
the calendar year in which the determination is being made;
    (ii) A national securities exchange that is registered under 
section 6 of the Securities Exchange Act of 1934 (15 USC 78f) with the 
Securities and Exchange Commission;
    (iii) Any exchange designated under a Limitation on Benefits 
article of an income tax treaty with the United States that is in 
force; or
    (iv) Any other exchange that the Secretary may designate in 
published guidance.
    (2) Foreign exchange with multiple tiers. If an exchange in a 
foreign country has more than one tier or market level on which stock 
may be separately listed or traded, each such tier shall be treated as 
a separate exchange.
    (3) Computation of dollar value of stock traded. For purposes of 
paragraph (c)(1)(i)(C)(1)(i) of this section, the value in U.S. dollars 
of shares traded during a calendar year shall be determined on the 
basis of the dollar value of such shares traded as reported by the 
World Federation of Exchanges located in Paris (or a successor 
institution), or, if not so reported, by converting into U.S. dollars 
the aggregate value in local currency of the shares traded using an 
exchange rate equal to the average of the spot rates on the last day of 
each month of the calendar year.
    (ii) Certain affiliated entities related to a publicly traded 
corporation. Any corporation that is a member of the same expanded 
affiliated group (as defined in Sec.  1.1471-5(i)) as a corporation 
described in paragraph (c)(1)(i) of this section.
    (iii) Certain territory entities. Any territory entity that is 
directly or indirectly wholly owned by one or more bona fide residents 
of the U.S. territory under the laws of which the entity is organized. 
The term bona fide resident of a U.S. territory means an individual who 
qualifies as a bona fide resident under section 937(a) and Sec.  1.937-
1.
    (iv) Active NFFEs. Any entity (an active NFFE) if less than 50 
percent of its gross income for the preceding calendar year is passive 
income and less than 50 percent of the weighted average percentage of 
assets (tested quarterly) held by it are assets that produce or are

[[Page 5980]]

held for the production of passive income, as determined after the 
application of paragraph (c)(1)(iv)(B) of this section (passive 
assets).
    (A) Passive income. Except as provided in paragraph (c)(1)(iv)(B) 
of this section, the term passive income means the portion of gross 
income that consists of--
    (1) Dividends, including substitute dividend amounts;
    (2) Interest;
    (3) Income equivalent to interest, including substitute interest 
and amounts received from or with respect to a pool of insurance 
contracts if the amounts received depend in whole or part upon the 
performance of the pool;
    (4) Rents and royalties, other than rents and royalties derived in 
the active conduct of a trade or business conducted, at least in part, 
by employees of the NFFE;
    (5) Annuities;
    (6) The excess of gains over losses from the sale or exchange of 
property that gives rise to passive income described in paragraphs 
(c)(1)(iv)(A)(1) through (5) of this section;
    (7) The excess of gains over losses from transactions (including 
futures, forwards, and similar transactions) in any commodities, but 
not including--
    (i) Any commodity hedging transaction described in section 
954(c)(5)(A), determined by treating the entity as a controlled foreign 
corporation; or
    (ii) Active business gains or losses from the sale of commodities, 
but only if substantially all the foreign entity's commodities are 
property described in paragraph (1), (2), or (8) of section 1221(a);
    (8) The excess of foreign currency gains over foreign currency 
losses (as defined in section 988(b)) attributable to any section 988 
transaction;
    (9) Net income from notional principal contracts as defined in 
Sec.  1.446-3(c)(1);
    (10) Amounts received under cash value insurance contracts; or
    (11) Amounts earned by an insurance company in connection with its 
reserves for insurance and annuity contracts.
    (B) Exceptions from passive income treatment. Notwithstanding 
paragraph (c)(1)(iv)(A) of this section, the term passive income does 
not include--
    (1) Any income from interest, dividends, rents, or royalties that 
is received or accrued from a related person to the extent such amount 
is properly allocable to income of such related person that is not 
passive income. For purposes of this paragraph (c)(1)(iv)(B)(1), the 
term ``related person'' has the meaning given such term by section 
954(d)(3) determined by substituting ``foreign entity'' for 
``controlled foreign corporation'' each place it appears in section 
954(d)(3); or
    (2) In the case of a foreign entity that regularly acts as a dealer 
in property described in paragraph (c)(1)(iv)(A)(6) of this section 
(referring to the sale or exchange of property that gives rise to 
passive income), forward contracts, option contracts, or similar 
financial instruments (including notional principal contracts and all 
instruments referenced to commodities)--
    (i) Any item of income or gain (other than any dividends or 
interest) from any transaction (including hedging transactions and 
transactions involving physical settlement) entered into in the 
ordinary course of such dealer's trade or business as such a dealer; 
and
    (ii) If such dealer is a dealer in securities (within the meaning 
of section 475(c)(2)), any income from any transaction entered into in 
the ordinary course of such trade or business as a dealer in 
securities.
    (C) Methods of measuring assets. For purposes of this paragraph 
(c)(1)(iv), the value of an NFFE's assets is determined based on the 
fair market value or book value of the assets that is reflected on the 
NFFE's balance sheet.
    (v) Excepted nonfinancial entities. Any entity described in Sec.  
1.1471-5(e)(5) (referring to holding companies, treasury centers, and 
captive finance companies that are members of a nonfinancial group; 
start-up companies; entities that are liquidating or emerging from 
bankruptcy; and non-profit organizations).
    (2) Payments made to a WP, WT, or an exempt beneficial owner. A 
withholding agent is not required to withhold on a withholdable payment 
(or portion thereof) under section 1472(a) and paragraph (b) of this 
section if the withholding agent may--
    (i) Treat the payee as an NFFE that is a WP or WT; or
    (ii) Treat the payment as made to an exempt beneficial owner.
    (d) Rules for determining payee and beneficial owner--(1) In 
general. For purposes of this section, except in the case of a payee 
that is a WP or WT, a withholding agent may treat a withholdable 
payment as beneficially owned by the payee as determined under Sec.  
1.1471-3. Thus, a withholding agent may treat a withholdable payment as 
beneficially owned by an excepted NFFE if the withholding agent can 
reliably associate the payment with valid documentation to determine 
the payee's status as an excepted NFFE under the rules of Sec.  1.1471-
3(d).
    (2) Payments made to an NFFE that is a WP or WT. A withholding 
agent may treat the payee of a withholdable payment as an NFFE that is 
a WP or WT if the withholding agent can reliably associate the payment 
with valid documentation to determine the payee's status as such under 
the rules of Sec.  1.1471-3(b)(3) and (d).
    (3) Payments made to a partner or beneficiary of an NFFE that is an 
NWP or NWT. A withholding agent may treat a partner or beneficiary of 
an NFFE that is an NWP or NWT, respectively, as the payee of a 
withholdable payment under this section if the withholding agent can 
reliably associate the payment with a valid Form W-8 or written 
notification that the NFFE is a flow-through entity as described in 
Sec.  1.1471-3(c)(2), including valid documentation sufficient to 
establish the chapter 4 status of each payee of the payment that is a 
partner or beneficiary, respectively, by applying the rules described 
in Sec.  1.1471-3(d).
    (4) Payments made to a beneficial owner that is an NFFE. A 
withholding agent may treat the beneficial owner of a withholdable 
payment as an NFFE that does not have any substantial U.S. owners or 
that has identified all of its substantial U.S. owners if it can 
reliably associate the payment with valid documentation identifying the 
beneficial owner as an NFFE that does not have any substantial U.S. 
owners or that has identified all of its substantial U.S. owners by 
applying the rules described in Sec.  1.1471-3(d).
    (5) Absence of valid documentation. A withholding agent that cannot 
reliably associate the payment with documentation as described in any 
of paragraphs (d)(2) through (4) of this section must treat the payment 
as made to a payee in accordance with the presumption rules under Sec.  
1.1471-3(f).
    (e) Information reporting requirements--(1) Reporting on 
withholdable payments. A withholding agent that treats a withholdable 
payment as made to any payee described in paragraph (d) of this section 
must provide information about such payee on Form 1042-S and file a 
withholding income tax return on Form 1042 to the extent required under 
Sec.  1.1474-1(d) and (c), respectively.
    (2) Reporting on substantial U.S. owners. A withholding agent that 
receives information about any substantial U.S. owners of an NFFE that 
is not an excepted NFFE must report information about the NFFE's 
substantial U.S. owners in accordance with Sec.  1.1474-1(i)(2). See 
Sec.  1.1471-4(d) for the reporting requirements of a participating FFI 
with respect to the

[[Page 5981]]

substantial U.S. owners of account holders that are NFFEs.
    (f) Effective/applicability date. This section generally applies 
January 28, 2013. For other dates of applicability, see Sec.  1.1472-
1(b).

0
Par. 12. Section 1.1473-1 is added to read as follows:


Sec.  1.1473-1  Section 1473 definitions.

    (a) Definition of withholdable payment--(1) In general. Except as 
otherwise provided in this paragraph (a) and Sec.  1.1471-2(b) 
(regarding grandfathered obligations), the term withholdable payment 
means--
    (i) Any payment of U.S. source FDAP income (as defined in paragraph 
(a)(2) of this section); and
    (ii) For any sales or other dispositions occurring after December 
31, 2016, any gross proceeds from the sale or other disposition (as 
defined in paragraph (a)(3)(i) of this section) of any property of a 
type that can produce interest or dividends that are U.S. source FDAP 
income.
    (2) U.S. source FDAP income defined--(i) In general--(A) FDAP 
income defined. For purposes of chapter 4, the term FDAP income means 
fixed or determinable annual or periodic income that is described in 
Sec.  1.1441-2(b)(1) or Sec.  1.1441-2(c) (excluding income described 
in paragraph (a)(2)(vi) of this section or Sec.  1.1441-2(b)(2) (such 
as gains derived from the sale of certain property)) and including the 
types of income enumerated in paragraphs (a)(2)(iii) through (v) of 
this section.
    (B) U.S. source. The term U.S. source means derived from sources 
within the United States. A payment is derived from sources within the 
United States if it is income treated as derived from sources within 
the United States under sections 861 through 865 and other relevant 
provisions of the Code. In the case of a payment of FDAP income for 
which the source cannot be determined at the time of payment, see Sec.  
1.1471-2(a)(5).
    (C) Exceptions to withholding on U.S. source FDAP income not 
applicable under chapter 4. Except as otherwise provided in paragraph 
(a)(4) of this section, no exception to withholding on U.S. source FDAP 
income for purposes other than chapter 4 applies for purposes of 
determining whether a payment of such income is a withholdable payment 
under chapter 4. Thus, for example, an exclusion from an amount subject 
to withholding under Sec.  1.1441-2(a) or an exclusion from taxation 
under section 881 does not apply for purposes of determining whether 
such income constitutes a withholdable payment.
    (ii) Special rule for certain interest. Interest that is described 
in section 861(a)(1)(A) (relating to interest paid by foreign branches 
of domestic corporations and partnerships) is treated as U.S. source 
FDAP income.
    (iii) Original issue discount. The rules described in Sec.  1.1441-
2(b)(3)(ii) for determining when an amount representing original issue 
discount is subject to withholding for chapter 3 purposes apply for 
purposes of determining when original issue discount from sources 
within the United States is U.S. source FDAP income.
    (iv) REMIC residual interests. U.S. source FDAP income includes an 
amount described in Sec.  1.1441-2(b)(5).
    (v) Withholding liability of payee that is satisfied by withholding 
agent. If a withholding agent satisfies a withholding liability arising 
under chapter 4 with respect to a withholdable payment from the 
withholding agent's own funds, the satisfaction of such liability is 
treated as an additional payment of U.S. source FDAP income to the 
payee to the extent that the withholding agent's satisfaction of such 
withholding liability also satisfies a tax liability of the payee under 
section 881 or 871 with respect to the same payment, and the 
satisfaction of the tax liability constitutes additional income to the 
payee under Sec.  1.1441-3(f) that is U.S. source FDAP income. In such 
case, the amount of any additional payment treated as made by the 
withholding agent for purposes of this paragraph (a)(2)(v) and any tax 
liability resulting from such payment shall be determined under Sec.  
1.1441-3(f). See Sec.  1.1474-6 regarding the coordination of the 
withholding requirements under chapters 3 and 4 in the case of a 
withholdable payment that is also subject to withholding under chapter 
3.
    (vi) Special rule for sales of interest bearing debt obligations. 
Income that is otherwise described as U.S. source FDAP income in 
paragraphs (a)(2)(i) through (v) of this section does not include an 
amount of interest accrued on the date of a sale or exchange of an 
interest bearing debt obligation if the sale occurs between two 
interest payment dates.
    (vii) Payment of U.S. source FDAP income--(A) Amount of payment of 
U.S. source FDAP income. The amount of U.S. source FDAP income is the 
gross amount of the payment of such income, unreduced by any deductions 
or offsets. The rules of Sec.  1.1441-3(b)(1) shall apply to determine 
the amount of an interest payment on an interest-bearing obligation. In 
the case of a corporate distribution, the distributing corporation or 
intermediary shall determine the portion of the distribution that is 
treated as U.S. source FDAP income under this paragraph (a)(2) in the 
same manner as the distributing corporation or intermediary determines 
the portion of the distribution subject to withholding under Sec.  
1.1441-3(c). Any portion of a payment on a debt instrument or a 
corporate distribution that does not constitute U.S. source FDAP income 
under this paragraph (a)(2) solely because of a provision other than 
the source rules of sections 861 through 865 shall be taken into 
account as gross proceeds under paragraph (a)(3) of this section. For 
rules regarding the determination of the amount of a payment of U.S. 
source FDAP income under paragraph (a)(2) of this section made in a 
medium other than U.S. dollars, see Sec.  1.1441-3(e). For determining 
the amount of a payment of a dividend equivalent, see section 871(m) 
and the regulations thereunder.
    (B) When payment of U.S. source FDAP income is made. A payment is 
considered made when the amount would be includible in the income of 
the beneficial owner under the U.S. tax principles governing the cash 
method of accounting. If an FFI acts as an intermediary with respect to 
a payment of U.S. source FDAP income, the FFI will be treated as making 
a payment of such U.S. source FDAP income to the person with respect to 
which the FFI acts as an intermediary when it pays or credits such 
amount to such person. The following rules also apply for purposes of 
this paragraph (a)(2)(vii)(B): Sec. Sec.  1.1441-2(e)(2) (regarding 
when a payment is considered made in the case of income allocated under 
section 482); 1.1441-2(e)(3) (regarding blocked income); 1.1441-2(e)(4) 
(regarding when a dividend is considered paid); and 1.1441-2(e)(5) 
(regarding when interest is considered paid if a foreign person has 
made an election under Sec.  1.884-4(c)(1)).
    (3) Gross proceeds defined--(i) Sale or other disposition--(A) In 
general. Except as otherwise provided in this paragraph (a)(3)(i), the 
term sale or other disposition means any sale, exchange, or disposition 
of property described in paragraph (a)(3)(ii) of this section that 
requires recognition of gain or loss under section 1001(c), determined 
without regard to whether the owner of such property is subject to U.S. 
federal income tax with respect to such sale, exchange, or disposition. 
The term sale or other disposition includes (but is not limited to) 
sales of securities; redemptions of stock; retirements and redemptions 
of indebtedness; entering into short sales; and a closing transaction 
under a forward contract,

[[Page 5982]]

option, or other instrument that is otherwise a sale. Such term further 
includes a distribution from a corporation to the extent the 
distribution is a return of capital or a capital gain to the beneficial 
owner of the payment. Such term does not include grants or purchases of 
options, exercises of call options for physical delivery, transfers of 
securities for which gain or loss is excluded from recognition under 
section 1058, or mere executions of contracts that require delivery of 
personal property or an interest therein. For purposes of this section 
only, a constructive sale under section 1259 or a mark to fair market 
value under section 475 or 1296 is not a sale or disposition.
    (B) Special rule for sales effected by brokers. In the case of a 
sale effected by a broker (with the term effect defined in Sec.  
1.6045-1(a)(10)), a sale means a sale as defined in Sec.  1.6045-
1(a)(9) with respect to property described in paragraph (a)(3)(ii) of 
this section.
    (C) Special rule for gross proceeds from sales settled by a 
clearing organization. In the case of a clearing organization that 
settles sales and purchases of securities between members of such 
organization on a net basis, the gross proceeds from sales or 
dispositions are limited to the net amount paid or credited to a 
member's account that is associated with sales or other dispositions of 
property described in paragraph (a)(3)(ii) of this section by such 
member as of the time that such transactions are settled under the 
settlement procedures of such organization.
    (ii) Property of a type that can produce interest or dividend 
payments that would be U.S. source FDAP income--(A) In general. 
Property is of a type that can produce interest or dividends payments 
that would be U.S. source FDAP income if the property is of a type that 
ordinarily gives rise to the payment of interest or dividends that 
would constitute U.S. source FDAP income, regardless of whether any 
such payment is made during the period such property is held by the 
person selling or disposing of such property. Thus, for example, stock 
issued by a domestic corporation is property of a type that can produce 
dividends from sources within the United States if a dividend from such 
corporation would be from sources within the United States, regardless 
of whether the stock pays dividends at regular intervals and regardless 
of whether the issuer has any plans to pay dividends or has ever paid a 
dividend with respect to the stock.
    (B) Contracts producing dividend equivalent payments. In the case 
of any contract that results in the payment of a dividend equivalent as 
defined in section 871(m) and the regulations thereunder (including as 
part of a termination payment), such contract shall be treated as 
property that is described in paragraph (a)(3)(ii)(A) of this section, 
without regard to whether the taxpayer is a foreign person subject to 
U.S. federal income tax with respect to such transaction. To the extent 
that the proceeds from a termination payment include the payment of a 
dividend equivalent, the gross amount of such proceeds will not include 
the amount of such dividend equivalent.
    (C) Regulated investment company distributions. The amount of a 
distribution that is designated as a capital gain dividend under 
section 852(b)(3)(C) or 871(k)(2) is a payment of gross proceeds to the 
extent attributable to property described in paragraph (a)(3)(ii)(A) of 
this section.
    (iii) Payment of gross proceeds--(A) When gross proceeds are paid. 
With respect to a sale that is effected by a broker that results in a 
payment of gross proceeds as defined in this paragraph (a)(3), the date 
the gross proceeds are considered paid is the date that the proceeds of 
such sale are credited to the account of or otherwise made available to 
the person entitled to the payment. If gross proceeds are paid to a 
financial institution or other entity acting as an intermediary for the 
person selling or otherwise disposing of the property, the gross 
proceeds are considered paid to such person on the date that the 
proceeds are credited to the account of or otherwise made available to 
such institution.
    (B) Amount of gross proceeds. Except as otherwise provided in this 
paragraph (a)(3)--
    (1) The amount of gross proceeds from a sale or other disposition 
means the total amount realized as a result of a sale or other 
disposition of property described in paragraph (a)(3)(ii) under section 
1001(b);
    (2) In the case of a sale effected by a broker, the amount of gross 
proceeds from a sale or other disposition means the total amount paid 
or credited to the account of the person entitled to the payment 
increased by any amount not so paid by reason of the repayment of 
margin loans. The broker may (but is not required to) take commissions 
with respect to the sale into account in determining the amount of 
gross proceeds;
    (3) In the case of a corporate distribution, the amount treated as 
gross proceeds excludes the amount described in paragraph 
(a)(2)(vii)(A) of this section that is treated as U.S. source FDAP 
income;
    (4) In the case of a sale of an obligation described in paragraph 
(a)(2)(vi), gross proceeds includes any interest accrued between 
interest payment dates; and
    (5) In the case of a sale, retirement, or redemption of a debt 
obligation, gross proceeds excludes the amount of original issue 
discount treated as U.S. source FDAP income under paragraph (a)(2)(iii) 
of this section.
    (4) Payments not treated as withholdable payments. The following 
payments are not withholdable payments under paragraph (a)(1) of this 
section--
    (i) Certain short-term obligations. A payment of interest or 
original issue discount on short-term obligations described in section 
871(g)(1)(B)(i).
    (ii) Effectively connected income. Any payment to the extent it 
gives rise to an item of income that is taken into account under 
section 871(b)(1) or 882(a)(1) for the taxable year. An item of income 
is taken into account under section 871(b)(1) or 882(a)(1) when the 
income is (or is deemed to be) effectively connected with the conduct 
of a trade or business in the United States and is includible in the 
beneficial owner's gross income for the taxable year. An amount of 
income shall not be treated as taken into account under section 
871(b)(1) or 882(a)(1) if the income is (or is deemed to be) 
effectively connected with the conduct of a trade or business in the 
United States and the beneficial owner claims an exception from tax 
under an income tax treaty because the income is not attributable to a 
permanent establishment in the United States.
    (iii) Excluded nonfinancial payments. Payments for the following: 
services (including wages and other forms of employee compensation 
(such as stock options)), the use of property, office and equipment 
leases, software licenses, transportation, freight, gambling winnings, 
awards, prizes, scholarships, and interest on outstanding accounts 
payable arising from the acquisition of goods or services. 
Notwithstanding the preceding sentence and except as otherwise provided 
in Sec.  1.1471-2(b) (regarding grandfathered obligations), 
withholdable payments include: payments in connection with a lending 
transaction (including loans of securities), a forward, futures, 
option, or notional principal contract, or a similar financial 
instrument; premiums for insurance contracts or annuity contracts; 
amounts paid under cash value insurance or annuity contracts; 
dividends; interest (including substitute

[[Page 5983]]

interest described in Sec.  1.861-2(a)(7)) other than interest 
described in the preceding sentence; investment advisory fees; 
custodial fees; and bank or brokerage fees.
    (iv) Gross proceeds from sales of excluded property. Gross proceeds 
from the sale or other disposition of any property that can produce 
U.S. source FDAP income if all such U.S. source FDAP income would be 
excluded from the definition of withholdable payment under paragraphs 
(a)(4)(i) through (iii) of this section.
    (v) Fractional shares. Payments arising in sales described in Sec.  
1.6045-1(c)(3)(ix).
    (vi) Offshore payments of U.S. source FDAP income prior to 2017 
(transitional). A payment of U.S. source FDAP income made prior to 
January 1, 2017, with respect to an offshore obligation if such payment 
is made by a person that is not acting as an intermediary with respect 
to the payment. The exception for offshore payments of U.S. source FDAP 
income provided in the preceding sentence shall not apply, however, in 
the case of a flow-through entity that has a residual withholding 
requirement with respect to its partners, owners, or beneficiaries 
under Sec.  1.1471-2(a)(2)(ii). For purposes of this paragraph 
(a)(4)(vi), an intermediary includes a person that acts as a qualified 
securities lender as defined for purposes of chapter 3.
    (5) Special payment rules for flow-through entities, complex 
trusts, and estates--(i) In general. This paragraph (a)(5) provides 
special rules for a flow-through entity, complex trust, or estate to 
determine when such entity must treat U.S. source FDAP income as having 
been paid by such entity to its partners, owners, or beneficiaries (as 
applicable depending on the type of entity).
    (ii) Partnerships. An amount of U.S. source FDAP income is treated 
as being paid to a partner under rules similar to the rules prescribing 
when withholding is required for chapter 3 purposes as described in 
Sec.  1.1441-5(b)(2)(i)(A).
    (iii) Simple trusts. An amount of U.S. source FDAP income is 
treated as being paid to a beneficiary of a simple trust under rules 
similar to the rules prescribing when withholding is required for 
chapter 3 purposes as described in Sec.  1.1441-5(b)(2)(ii).
    (iv) Complex trusts and estates. An amount of U.S. source FDAP 
income is treated as paid to a beneficiary of a complex trust or estate 
under rules similar to the rules prescribing when withholding is 
required for chapter 3 purposes as described in Sec.  1.1441-
5(b)(2)(iii).
    (v) Grantor trusts. If an amount of U.S. source FDAP income is paid 
to a grantor trust, a person treated as an owner of all or a portion of 
such trust is treated as having been paid such income by the trust at 
the time it is received by or credited to the trust or portion thereof.
    (vi) Special rule for an NWP or NWT. In the case of a partnership, 
simple trust, or complex trust that is an NWP or NWT, the rules 
described in paragraphs (a)(5)(ii) and (iii) of this section shall not 
apply, and U.S. source FDAP income is treated as paid to the partner or 
beneficiary at the time the income is paid to the partnership or trust, 
respectively.
    (vii) Special rule for determining when gross proceeds are treated 
as paid to a partner, owner, or beneficiary of a flow-through entity. 
[Reserved].
    (6) Reporting of withholdable payments. See Sec.  1.1474-1(c) and 
(d) for a description of the income tax return and information 
reporting requirements applicable to a withholding agent that has made 
a withholdable payment.

    (7) Example. Satisfaction of payee's chapter 4 liability by 
withholding agent. Recalcitrant account holder (RA) is entitled to 
receive a payment of $100 of U.S. source interest from withholding 
agent, WA. The payment is subject to withholding under chapter 4, 
but is not subject to withholding under section 1442, and RA has no 
substantive tax liability under section 881 with respect to this 
payment. WA pays the full $100 to RA and, after the date of payment, 
pays the $30 of tax due under chapter 4 to the IRS from its own 
funds. Because no underlying tax liability of RA is satisfied, and 
further because WA and RA did not execute any agreement for WA to 
pay this tax and WA did not have an obligation to pay this tax apart 
from the requirements of chapter 4, WA's payment of the tax does not 
give rise to a deemed payment of U.S. source FDAP income to RA under 
paragraph (a)(2)(v) of this section. Thus, WA is not required to pay 
any additional tax with respect to this payment for purposes of 
chapter 4.

    (b) Substantial U.S. owner--(1) Definition. Except as otherwise 
provided in paragraph (b)(4) or (5) of this section, the term 
substantial United States owner (or substantial U.S. owner) means:
    (i) With respect to any foreign corporation, any specified U.S. 
person that owns, directly or indirectly, more than 10 percent of the 
stock of such corporation (by vote or value);
    (ii) With respect to any foreign partnership, any specified U.S. 
person that owns, directly or indirectly, more than 10 percent of the 
profits interests or capital interests in such partnership; and
    (iii) In the case of a trust--
    (A) Any specified U.S. person treated as an owner of any portion of 
the trust under sections 671 through 679; and
    (B) Any specified U.S. person that holds, directly or indirectly, 
more than 10 percent of the beneficial interests of the trust.
    (2) Indirect ownership of foreign entities. For purposes of 
determining a person's interest in a foreign entity, the following 
rules shall apply.
    (i) Indirect ownership of stock. Stock of a foreign corporation 
that is owned directly or indirectly by an entity (other than a 
participating FFI, a deemed-compliant FFI (excluding an owner-
documented FFI), a U.S. financial institution, a U.S. person that is 
not a specified U.S. person, an exempt beneficial owner, or an excepted 
NFFE) that is a corporation, partnership, or trust shall be considered 
as being owned proportionately by such entity's shareholders, partners, 
or, in the case of a trust, persons treated as owners under sections 
671 through 679 of any portion of the trust that includes the stock, 
and the beneficiaries of the trust. Stock considered to be owned by a 
person by reason of the application of the preceding sentence shall, 
for purposes of applying such sentence, be treated as actually owned by 
such person.
    (ii) Indirect ownership in a foreign partnership or ownership of a 
beneficial interest in a foreign trust. A capital or profits interest 
in a foreign partnership or an ownership or beneficial interest (as 
described in paragraph (b)(3) of this section) in a foreign trust that 
is owned or held directly or indirectly by an entity (other than a 
participating FFI, a deemed-compliant FFI (excluding an owner-
documented FFI), a U.S. financial institution, a U.S. person that is 
not a specified U.S. person, an exempt beneficial owner, or an excepted 
NFFE) that is a corporation, partnership, or trust shall be considered 
as being owned or held proportionately by such entity's shareholders, 
partners, or, in the case of a trust, persons treated as owners under 
sections 671 through 679 of any portion of the trust that includes the 
partnership or beneficial trust interest, and the beneficiaries of the 
trust. Partnership or beneficial trust interests considered to be owned 
or held by a person by reason of the application of the preceding 
sentence shall, for purposes of applying such sentence, be treated as 
actually owned or held by such person.
    (iii) Ownership and holdings through options. If a specified U.S. 
person holds, directly or indirectly (applying the principles of 
paragraphs (b)(2)(i) and (ii) of this section) an option to acquire 
stock in a foreign corporation, a capital

[[Page 5984]]

or profits interest in a foreign partnership, or an ownership or 
beneficial interest in a foreign trust, such person is considered to 
own the underlying equity or other ownership interest in such foreign 
entity for purposes of this paragraph (b). For purposes of the 
preceding sentence, an option to acquire such an option, and each one 
of a series of such options, shall be considered an option to acquire 
such stock or other ownership interest described in this paragraph 
(b)(2)(iii).
    (iv) Determination of proportionate interest. For purposes of this 
paragraph (b), and except as otherwise provided in paragraph (b)(3) of 
this section, the determination of a person's proportionate interest in 
a foreign corporation, partnership, or trust is based on all of the 
relevant facts and circumstances. In making this determination, any 
arrangement that artificially decreases a specified U.S. person's 
proportionate interest in any such entity will be disregarded in 
determining whether such person is a substantial U.S. owner. In lieu of 
applying the rules of this paragraph (b)(2) to determine whether an 
owner's proportionate interest in a foreign entity meets the 10 percent 
threshold described in paragraph (b)(1) of this section, the entity or 
its withholding agent may opt to treat the owner as a substantial U.S. 
owner.
    (v) Interests owned or held by a related person. For purposes of 
determining whether a person has more than a 10 percent interest in a 
foreign corporation, foreign partnership, or foreign trust, the person 
must aggregate the ownership or beneficial interests in the foreign 
corporation, foreign partnership, or foreign trust that are owned or 
held by any person related to such person. For purposes of the 
preceding sentence, a person is related to another person if the 
relationship between such persons would result in a disallowance of 
losses under Sec. Sec.  1.267(a)-1 through 1.267(f)-1 or Sec.  1.707-
1(b). Section 1.267(c)-1(a)(4) is applied as if the family of an 
individual includes the spouses of the members of the individual's 
family.
    (3) Beneficial interest in a foreign trust--(i) In general. For 
purposes of paragraph (b)(1)(iii)(B) of this section, a person holds a 
beneficial interest in a foreign trust if such person has the right to 
receive directly or indirectly (for example, through a nominee) a 
mandatory distribution or may receive, directly or indirectly, a 
discretionary distribution from the trust. For purposes of this 
section, a mandatory distribution means a distribution that is required 
to be made pursuant to the terms of the trust document. A discretionary 
distribution means a distribution that is made to a person at the 
discretion of the trustee or a person with a limited power of 
appointment of such trust.
    (ii) Determining the 10 percent threshold in the case of a 
beneficial interest in a foreign trust. A person will be treated as 
holding directly or indirectly more than 10 percent of the beneficial 
interest in a foreign trust if--
    (A) The beneficiary receives, directly or indirectly, only 
discretionary distributions from the trust and the fair market value of 
the currency or other property distributed, directly or indirectly, 
from the trust to such person during the prior calendar year exceeds 10 
percent of the value of either all of the distributions made by the 
trust during that year or all of the assets held by the trust at the 
end of that year;
    (B) The person is entitled to receive, directly or indirectly, 
mandatory distributions from the trust and the value of the person's 
interest in the trust, as determined under section 7520, exceeds 10 
percent of the value of all the assets held by the trust; or
    (C) The person is entitled to receive, directly or indirectly, 
mandatory distributions and may receive, directly or indirectly, 
discretionary distributions from the trust, and the value of the 
person's interest in the trust, determined as the sum of the fair 
market value of all of the currency or other property distributed from 
the trust at the discretion of the trustee during the prior calendar 
year to the person and the value of the person's interest in the trust 
as determined under section 7520 at the end of that year, exceeds 
either 10 percent of the value of all distributions made by such trust 
during the prior calendar year or 10 percent of the value of all the 
assets held by the trust at the end of that year.
    (4) Exceptions--(i) De minimis amount or value exception. A 
specified U.S. person is not treated as a substantial U.S. owner if--
    (A) The fair market value of the currency or other property 
distributed, directly or indirectly, from the trust to such specified 
U.S. person during the prior calendar year is $5,000 or less and,
    (B) In the case of a specified U.S. person that is entitled to 
receive mandatory distributions, the value of such person's interest in 
the trust is $50,000 or less.
    (ii) Trusts wholly owned by certain U.S. persons. A trust that is 
treated as owned only by U.S. persons under sections 671 through 679 is 
not required to treat any of its beneficiaries as substantial U.S. 
owners.
    (5) Special rule for certain financial institutions. In the case of 
any financial institution described in Sec.  1.1471-5(e)(1)(iii) or 
(iv) (referring to investment entities and specified insurance 
companies), this section shall be applied by substituting ``0 percent'' 
for ``10 percent'' in each place that it appears. Additionally, in the 
case of a financial institution described in Sec.  1471-5(e)(1)(iii) 
that is a trust, the rules of paragraph (b)(3) and (4) of this section 
(referring to beneficial interests in a trust) shall be applied by 
substituting ``calendar year'' for ``prior calendar year'' in each 
place that it appears.
    (6) Determination dates for substantial U.S. owners. A foreign 
entity may make the determination of whether it has one or more direct 
or indirect substantial U.S. owners as of the last day of such entity's 
accounting year or as of the date on which such foreign entity provides 
the documentation described in Sec.  1.1471-3(d) to the withholding 
agent for which such determination is required to be made. See Sec.  
1.1471-4(c) for when a participating FFI is required to obtain 
documentation with respect to its account holders.
    (7) Examples. The following examples illustrate the provisions of 
paragraph (b) of this section:

    Example 1. Indirect ownership. U, a specified U.S. person, owns 
directly 100% of the sole class of stock of F1, a foreign 
corporation. F1 owns directly 90% of the sole class of stock of F2, 
a foreign corporation, and U owns directly the remaining 10% of the 
sole class of stock of F2. F2 owns directly 10% of the sole class of 
stock of F3, a foreign corporation, and U owns directly 3% of the 
sole class of stock of F3. U is treated as owning 13% (3% directly 
and 10% indirectly) of the sole class of stock of F3 and 100% (10% 
directly and 90% indirectly) of the sole class of stock of F2 for 
purposes of this paragraph (b). U is a substantial U.S. owner of F1, 
F2, and F3.
    Example 2.  Indirect ownership through entities that are 
specified U.S. persons. U, a specified U.S. person, owns directly 
100% of the sole class of stock of US1, a U.S. corporation that is a 
specified U.S. person. US1 owns directly 100% of the sole class of 
stock of US2, a U.S. corporation that is a specified U.S. person. 
US2 owns directly 15% of the sole class of stock of FC, a foreign 
corporation. For purposes of this paragraph (b), U, US1, and US2 are 
all substantial U.S. owners of FC.
    Example 3. Determining the 10% threshold in the case of a 
beneficial interest in a foreign trust. U, a U.S. citizen, holds an 
interest in FT1, a foreign trust, under which U may receive 
discretionary distributions from FT1. U also holds an interest in 
FT2, a foreign trust, and FT2, in turn, holds an interest in FT1 
under which FT2 may receive discretionary distributions from FT1. U

[[Page 5985]]

receives $25,000 from FT1 in Year 1. FT2 receives $120,000 from FT1 
in Year 1 and distributes the entire amount to its beneficiaries in 
Year 1. The distribution from FT1 is FT2's only source of income and 
FT2's distributions in Year 1 total $120,000. U receives $40,000 
from FT2 in Year 1. FT1's distributions in Year 1 total $750,000. 
U's discretionary interest in FT1 is valued at $65,000 at the end of 
Year 1 and therefore does not meet the 10% threshold as determined 
under paragraph (b)(3)(ii)(A). U's discretionary interest in FT2, 
however, is valued at $40,000 at the end of Year 1 and therefore 
meets the 10% threshold as determined under paragraph (b)(3)(ii)(A).
    Example 4.  Determining ownership (determination date). F, a 
foreign corporation that is an NFFE, has a calendar year accounting 
year. On December 31 of Year 1, U, a specified U.S. person, owns 12% 
of the sole class of outstanding stock of F. In March of Year 2, F 
redeems a portion of U's stock and reduces U's ownership of F to 9%. 
In May of Year 2, F opens an account with P, a participating FFI, 
and delivers to P the documentation required under Sec.  1.1471-
3(d). At the time F opens its account with P, U is the only 
specified U.S. person that directly or indirectly owns stock in F. 
Because of the redemption, U's interest in F is 9% on the date F 
opens its account with P. Pursuant to paragraph (b)(6) of this 
section, F may determine whether it has a substantial U.S. owner as 
of the date it provides the documentation required under Sec.  
1.1471-3(d) to P, which would be the day it opens the account. As a 
result, F may indicate in its Sec.  1.1471-3(d) documentation that 
it has no substantial U.S. owners.

    (c) Specified U.S. person. The term specified United States person 
(or specified U.S. person) means any U.S. person other than--
    (1) A corporation the stock of which is regularly traded on one or 
more established securities markets, as described in Sec.  1.1472-
1(c)(1)(i);
    (2) Any corporation that is a member of the same expanded 
affiliated group as a corporation described in Sec.  1.1472-1(c)(1)(i);
    (3) Any organization exempt from taxation under section 501(a) or 
an individual retirement plan as defined in section 7701(a)(37);
    (4) The United States or any wholly owned agency or instrumentality 
thereof;
    (5) Any State, the District of Columbia, any U.S. territory, any 
political subdivision of any of the foregoing, or any wholly owned 
agency or instrumentality of any one or more of the foregoing;
    (6) Any bank as defined in section 581;
    (7) Any real estate investment trust as defined in section 856;
    (8) Any regulated investment company as defined in section 851 or 
any entity registered with the Securities Exchange Commission under the 
Investment Company Act of 1940 (15 U.S.C. 80a-64);
    (9) Any common trust fund as defined in section 584(a);
    (10) Any trust that is exempt from tax under section 664(c) or is 
described in section 4947(a)(1);
    (11) A dealer in securities, commodities, or derivative financial 
instruments (including notional principal contracts, futures, forwards, 
and options) that is registered as such under the laws of the United 
States or any State;
    (12) A broker; and
    (13) Any tax exempt trust under a section 403(b) plan or section 
457(g) plan.
    (d) Withholding agent--(1) In general. Except as provided in this 
paragraph (d), the term withholding agent means any person, U.S. or 
foreign, in whatever capacity acting, that has the control, receipt, 
custody, disposal, or payment of a withholdable payment or foreign 
passthru payment.
    (2) Participating FFIs and registered deemed-compliant FFIs as 
withholding agents. The term withholding agent includes a participating 
FFI that has the control, receipt, custody, disposal, or payment of a 
passthru payment (as defined in Sec.  1.1471-5(h)). The term 
withholding agent also includes a registered deemed-compliant FFI to 
the extent that such FFI is required to withhold on a passthru payment 
as part of the conditions for maintaining its status as a deemed-
compliant FFI under Sec.  1.1471-5(f)(1)(ii). For the withholding 
requirements of a participating FFI, including the requirement to 
withhold with respect to limited branches and limited FFIs that are in 
the same expanded affiliated group as the participating FFI, see 
Sec. Sec.  1.1471-4(b) and 1.1472-1(a).
    (3) Grantor trusts as withholding agents. The term withholding 
agent includes a grantor trust with respect to a withholdable payment 
or a foreign passthru payment (in the case of a grantor trust that is a 
participating FFI) made to a person treated as an owner of the trust 
under sections 671 through 679. For purposes of determining when a 
payment is treated as made to such a person, see Sec.  1.1473-
1(a)(5)(v).
    (4) Deposit and return requirements. See Sec.  1.1474-1(b) for a 
withholding agent's requirement to deposit any tax withheld, and Sec.  
1.1474-1(c) and (d) for the requirement to file income tax and 
information returns (including the special allowance in Sec.  1.1474-
1(b)(2) for participating FFIs with respect to dormant accounts).
    (5) Multiple withholding agents. When several persons qualify as a 
withholding agent with respect to a single payment, only one tax is 
required to be withheld and deposited. See Sec.  1.1474-1(a). A person 
who, as a nominee described in Sec.  1.6031(c)-1T, has furnished to a 
partnership all of the information required to be furnished under Sec.  
1.6031(c)-1T(a) shall not be treated as a withholding agent if the 
person has notified the partnership that it is treating the provision 
of information to the partnership as a discharge of its obligations as 
a withholding agent.
    (6) Exception for certain individuals. An individual is not a 
withholding agent with respect to a withholdable payment made by the 
individual outside the course of such individual's trade or business 
(including as an agent with respect to making or receiving such 
payment).
    (e) Foreign entity. The term foreign entity means any entity that 
is not a U.S. person and includes a territory entity.
    (f) Effective/applicability date. This section generally applies 
January 28, 2013. For other dates of applicability see Sec. Sec.  
1.1473-1(a)(1)(ii) and 1.1473-1(a)(4)(vi).

0
Par. 13. Section 1.1474-1 is added to read as follows:


Sec.  1.1474-1  Liability for withheld tax and withholding agent 
reporting.

    (a) Payment and returns of tax withheld--(1) In general. A 
withholding agent is required to deposit any tax withheld pursuant to 
chapter 4 as provided under paragraph (b) of this section and to make 
the returns prescribed by paragraphs (c) and (d) of this section. When 
several persons qualify as withholding agents with respect to a single 
payment, only one tax is required to be withheld and deposited.
    (2) Withholding agent liability. A withholding agent that is 
required to withhold with respect to a payment under Sec.  1.1471-2(a), 
1.1471-4(b) (in the case of a participating FFI), or 1.1472-1(b) but 
fails either to withhold or to deposit any tax withheld with an 
authorized financial institution, as required under paragraph (b) of 
this section, is liable for the amount of tax not withheld and 
deposited.
    (3) Use of agents--(i) In general. Except as otherwise provided in 
this paragraph (a)(3), a withholding agent may authorize an agent to 
fulfill its obligations under chapter 4. The acts of an agent of a 
withholding agent (including the receipt of withholding certificates, 
the payment of amounts subject to withholding, the withholding

[[Page 5986]]

and deposit of tax withheld, and the reporting required on the relevant 
form) are imputed to the withholding agent on whose behalf it is 
acting.
    (ii) Authorized agent. An agent is authorized only if--
    (A) There is a written agreement between the withholding agent and 
the person acting as agent;
    (B) A Form 8655, ``Reporting Agent Authorization,'' is filed with 
the IRS if the agent (including any sub-agent) is acting as a reporting 
agent for filing Form 1042 or making tax deposits and payments;
    (C) Books and records and relevant personnel of the agent 
(including any sub-agent) are available to the withholding agent (on a 
continuous basis, including after termination of the relationship) in 
order to evaluate the withholding agent's compliance with the 
provisions of chapter 4; and
    (D) The withholding agent remains fully liable for the acts of its 
agent (or any sub-agent) and does not assert any of the defenses that 
may otherwise be available, including under common law principles of 
agency, in order to avoid tax liability under the Code.
    (iii) Liability of withholding agent acting through an agent. A 
withholding agent acting through an agent is liable for any failure of 
the agent, such as a failure to withhold an amount or make a payment of 
tax, in the same manner and to the same extent as if the agent's 
failure had been the failure of the withholding agent. For this 
purpose, the agent's actual knowledge or reason to know shall be 
imputed to the withholding agent. Except as otherwise provided in the 
QI, WP, or WT agreement, an agent of a withholding agent is subject to 
the same withholding and reporting obligations that apply to any 
withholding agent under the provisions of chapter 4 and does not 
benefit from the special procedures or exceptions that apply to a QI, 
WP, or WT. If the agent is a foreign person, however, a U.S. 
withholding agent may treat the acts of the foreign agent as its own 
for purposes of determining whether it has complied with the provisions 
of chapter 4. The withholding agent's liability under paragraph (a)(2) 
of this section will exist even if the agent is also a withholding 
agent and is itself separately liable for failure to comply with the 
provisions of chapter 4. The same tax, interest, or penalties, however, 
shall not be collected more than once.
    (4) Liability for failure to obtain documentation timely or to act 
in accordance with applicable presumptions--(i) In general. A 
withholding agent that cannot reliably associate a payment with 
documentation on the date of payment and that does not withhold under 
Sec.  1.1471-2(a), 1.1471-4(b), or 1.1472-1(b), or withholds at less 
than the 30 percent rate prescribed, is liable under this section for 
the tax required to be withheld under Sec.  1.1471-2(a), 1.1471-4(b), 
or 1.1472-1(b) (including interest, penalties, or additions to tax 
otherwise applicable in respect of the failure to deduct and withhold) 
unless--
    (A) The withholding agent has appropriately relied on the 
presumptions described in Sec.  1.1471-3(f) in order to treat the 
payment as exempt from withholding; or
    (B) The withholding agent obtained after the date of payment valid 
documentation that meets the requirements of Sec.  1.1471-3(c)(7) to 
establish that the payment was, in fact, exempt from withholding.
    (ii) Withholding satisfied by another withholding agent. If a 
withholding agent fails to deduct and withhold any amount required to 
be deducted and withheld under Sec.  1.1471-2(a), 1.1471-4(b), or 
1.1472-1(b), and the tax is satisfied by another withholding agent or 
is otherwise paid, then the amount of tax required to be deducted and 
withheld shall not be collected from the first-mentioned withholding 
agent. However, the withholding agent is not relieved from liability in 
any such case for any interest or penalties or additions to tax 
otherwise applicable in respect of the failure to deduct and withhold.
    (b) Payment of withheld tax--(1) In general. Except as otherwise 
provided in this paragraph (b), every withholding agent who withholds 
tax pursuant to chapter 4 shall deposit such tax with an authorized 
financial institution as provided in Sec.  1.6302-2(a) or by electronic 
funds transfer as provided under Sec.  31.6302-1(h) of this chapter. If 
for any reason the total amount of tax required to be deposited for any 
calendar year pursuant to the income tax return described in paragraph 
(c) of this section has not been deposited pursuant to Sec.  1.6302-2, 
the withholding agent shall pay the balance of such tax due for such 
year at such place as the IRS shall specify. The tax shall be paid when 
filing the return described in paragraph (c)(1) of this section for 
such year, unless the IRS specifies otherwise. See Sec.  1.1471-4(b)(6) 
for the special rule allowing participating FFIs to set aside in escrow 
amounts withheld with respect to dormant accounts.
    (2) Special rule for foreign passthru payments and payments of 
gross proceeds that include an undetermined amount of income subject to 
tax. [Reserved].
    (c) Income tax return--(1) In general. Every withholding agent 
shall file an income tax return on Form 1042, ``Annual Withholding Tax 
Return for U.S. Source Income of Foreign Persons,'' (or such other form 
as the IRS may prescribe) to report chapter 4 reportable amounts (as 
defined in paragraph (d)(2)(i) of this section). This income tax return 
shall be filed on the same income tax return used to report amounts 
subject to reporting for chapter 3 purposes as described in Sec.  
1.1461-1(b). The return must show the aggregate amount of payments that 
are chapter 4 reportable amounts and must report the tax withheld for 
the preceding calendar year by the withholding agent, in addition to 
any information required by the form and its accompanying instructions. 
Withholding certificates and other statements or information provided 
to a withholding agent are not required to be attached to the return. A 
Form 1042 must be filed under this paragraph (c)(1) even if no tax was 
required to be withheld for chapter 4 purposes during the preceding 
calendar year. The withholding agent must retain a copy of Form 1042 
for the applicable period of limitations on assessment and collection 
with respect to the amounts required to be reported on the Form 1042. 
See section 6501 and the regulations thereunder for the applicable 
period of limitations. Adjustments to the total amount of tax withheld 
described in Sec.  1.1474-2 shall be stated on the return as prescribed 
by the form and its accompanying instructions.
    (2) Participating FFIs, registered deemed-compliant FFIs, and U.S. 
branches treated as U.S. persons. Except as otherwise provided under an 
FFI agreement, a participating FFI or registered deemed-compliant FFI 
shall file Form 1042 in accordance with paragraph (c)(1) of this 
section to report chapter 4 reportable amounts for which the 
participating FFI or registered deemed-compliant FFI is required to 
file Form 1042-S, as described in paragraph (d)(4)(iii) of this 
section. A participating FFI or registered deemed-compliant FFI with a 
U.S. branch that is treated as a U.S. person must exclude from Form 
1042 payments made and taxes withheld by such U.S. branch. A U.S. 
branch that is treated as a U.S. person shall file a separate Form 1042 
in accordance with paragraph (c)(1) of this section and the 
instructions on the form to report chapter 4 reportable amounts.
    (3) Amended returns. An amended return under this paragraph (c)(3) 
must be filed on Form 1042. An amended return must include such 
information as the form or its accompanying

[[Page 5987]]

instructions shall require, including, with respect to any information 
that has changed from the time of the filing of the return, the 
information that was shown on the original return and the corrected 
information.
    (d) Information returns for payment reporting--(1) Filing 
requirement--(i) In general. Every withholding agent must file an 
information return on Form 1042-S, ``Foreign Person's U.S. Source 
Income Subject to Withholding,'' (or such other form as the IRS may 
prescribe) to report to the IRS chapter 4 reportable amounts as 
described in paragraph (d)(2)(i) of this section that were paid to a 
recipient during the preceding calendar year. Except as otherwise 
provided in paragraphs (d)(4)(ii)(B) (certain unknown recipients) and 
(d)(4)(i)(B) and (d)(4)(iii)(A) of this section (describing payees 
includable in reporting pools of a participating FFI or registered 
deemed-compliant FFI), a separate Form 1042-S must be filed with the 
IRS for each recipient of an amount subject to reporting under 
paragraph (d)(2)(i) of this section and for each separate type of 
payment made to a single recipient in accordance with paragraph 
(d)(4)(i) of this section. The Form 1042-S shall be prepared in such 
manner as the form and its accompanying instructions prescribe. One 
copy of the Form 1042-S shall be filed with the IRS on or before March 
15 of the calendar year following the year in which the amount subject 
to reporting was paid, with a transmittal form as provided in the 
instructions to the form. Withholding certificates, certifications, 
documentary evidence, or other statements or documentation provided to 
a withholding agent are not required to be attached to the form. A copy 
of the Form 1042-S must be furnished to the recipient for whom the form 
is prepared (or any other person, as required under this paragraph or 
the instructions to the form) and to any intermediary or flow-through 
entity described in paragraph (d)(3)(vii) of this section on or before 
March 15 of the calendar year following the year in which the amount 
subject to reporting was paid. The copy provided to the persons 
described in the preceding sentence may show more than one type of 
income or other payment subject to reporting on the Form 1042-S. The 
withholding agent must retain a copy of each Form 1042-S for the period 
of limitations on assessment and collection applicable to the tax 
reportable on the Form 1042 to which the Form 1042-S relates 
(determined as set forth in paragraph (c)(1) of this section). See 
paragraph (d)(4)(iii) of this section for the additional reporting 
requirements of participating FFIs and deemed-compliant FFIs.
    (ii) Recipient--(A) Defined. Except as otherwise provided in 
paragraph (d)(1)(ii)(B) of this section, the term recipient under this 
paragraph (d) means a person that is a recipient of a chapter 4 
reportable amount, and includes--
    (1) With respect to a payment of U.S. source FDAP income--
    (i) A QI (including a QI that is a foreign branch of a U.S. 
person);
    (ii) A WP or WT;
    (iii) A participating FFI or a registered deemed-compliant FFI that 
is an NQI, NWP, or NWT (including its U.S. branch that is not treated 
as a U.S. person) and that provides its withholding agent with 
sufficient information to determine the portion of the payment 
allocable to its reporting pools of recalcitrant account holders, 
payees that are nonparticipating FFIs, and payees that are U.S. persons 
described in paragraph (d)(4)(i)(B) of this section;
    (iv) An account holder or payee to the extent that the withholding 
agent issues a Form 1042-S to such account holder or payee;
    (v) An FFI that is a beneficial owner of the payment (including a 
limited branch of the FFI);
    (vi) A U.S. branch of a participating FFI or registered deemed-
compliant FFI that is treated as a U.S. person;
    (vii) A territory financial institution treated as a U.S. person;
    (viii) An excepted NFFE that is not acting as an agent or 
intermediary with respect to the payment;
    (ix) A passive NFFE except to the extent described in paragraph 
(d)(1)(ii)(A)(1)(x) (certain flow-through NFFEs) of this section;
    (x) A foreign person that is a partner or beneficiary in a flow-
through entity that is an NFFE when the withholding agent treats such 
partner or beneficiary as a payee and beneficial owner because the 
requirements of Sec.  1.1472-1(d)(3) are met;
    (xi) An exempt beneficial owner of a payment, including when the 
payment is made to such owner through an FFI (including a 
nonparticipating FFI) that provides documentation and information 
sufficient for a withholding agent to determine the portion of the 
payment allocable to such owner; and
    (xii) Any person (including a flow-through entity) or U.S. branch 
of a participating FFI or reporting Model 1 FFI receiving such income 
that is (or is deemed to be) effectively connected with the conduct of 
its trade or business in the United States;
    (2) With respect to a payment other than U.S. source FDAP income. 
[Reserved]; and
    (3) Any other person required to be reported as a recipient by Form 
1042-S, its accompanying instructions, under an FFI agreement, or 
paragraph (d)(4)(iii) of this section with respect to the Form 1042-S 
reporting requirements of a participating FFI.
    (B) Persons that are not recipients. Persons that are not 
recipients include--
    (1) With respect to a payment of U.S. source FDAP income--
    (i) A participating FFI, registered deemed-compliant FFI, or 
certified deemed-compliant FFI that is an NQI, NWP, or NWT (including 
its U.S. branch that is not treated as a U.S. person) and that fails to 
provides its withholding agent with sufficient information to allocate 
the payment to its account holders and payees;
    (ii) A financial institution (other than a nonparticipating FFI) to 
the extent that the withholding agent issues a Form 1042-S to the FFI's 
account holder or payee;
    (iii) A participating FFI or a registered deemed-compliant FFI that 
is an NQI, NWP, or NWT (including its U.S. branch that is not treated 
as a U.S. person) to the extent it provides its withholding agent with 
sufficient information to allocate the payment to its account holders 
and payees that are exempt from withholding under chapter 4;
    (iv) An account holder or payee of a participating FFI or 
registered deemed-compliant FFI (including an account holder or payee 
of a U.S. branch of such FFI that is not treated as a U.S. person) that 
is included in the FFI's reporting pools described in paragraph 
(d)(4)(i)(B) of this section;
    (v) A nonparticipating FFI that acts as an intermediary with 
respect to a payment or that is a flow-through entity (including a 
limited branch);
    (vi) An account holder or payee of a nonparticipating FFI except to 
the extent described in paragraph (d)(1)(ii)(A)(1)(xi) of this section 
for an exempt beneficial owner;
    (vii) Except as provided in paragraph (d)(1)(ii)(A)(1)(i) of this 
section (referring to a QI that is a foreign branch of a U.S. person), 
a wholly owned entity that is disregarded under Sec.  301.7701-2(c)(2) 
of this chapter as an entity separate from its owner;
    (viii) A territory financial institution to the extent provided in 
paragraph (d)(4)(i)(D)(2) and (3) of this section; and
    (ix) A flow-through entity that is a passive NFFE to the extent 
that the withholding agent treats a foreign person that is a partner or 
beneficiary of

[[Page 5988]]

the NFFE as a recipient pursuant to paragraph (d)(1)(ii)(A)(1)(x) of 
this section;
    (2) With respect to a payment other than U.S. source FDAP income. 
[Reserved]; and
    (3) Any other person not treated as a recipient on Form 1042-S, its 
accompanying instructions, or under an FFI agreement.
    (2) Amounts subject to reporting--(i) In general. Subject to 
paragraph (d)(2)(iii) of this section, the term chapter 4 reportable 
amount means each of the following amounts reportable on a Form 1042-S 
for purposes of chapter 4--
    (A) U.S. source FDAP income that is reportable on Form 1042-S under 
Sec.  1.1461-1(c)(2)(i) or that is otherwise subject to withholding 
under chapter 4 paid on or after January 1, 2014;
    (B) Gross proceeds subject to withholding under chapter 4;
    (C) A foreign passthru payment subject to withholding under chapter 
4; and
    (D) A foreign reportable amount paid by a participating FFI to the 
extent reporting of such amount is required under paragraph 
(d)(4)(iii)(C) of this section. The term foreign reportable amount 
means a payment of FDAP income as defined in Sec.  1.1473-1(a)(2)(i)(A) 
that would be a withholdable payment if paid by a U.S. person.
    (ii) Exception to reporting. Except as otherwise provided in this 
paragraph (d)(2)(ii), a chapter 4 reportable amount does not include an 
amount paid to a U.S. person if the withholding agent treats such U.S. 
person as a payee for purposes of determining whether withholding is 
required under Sec. Sec.  1.1471-2 and 1.1472-1. A chapter 4 reportable 
amount does, however, include an amount paid to a participating FFI or 
registered deemed-compliant FFI to the extent allocable to its 
reporting pool of payees that are U.S. persons as described in 
paragraph (d)(4)(i)(B) of this section.
    (iii) Coordination with chapter 3. A payment that is not subject to 
reporting under this paragraph (d)(2) may be subject to chapter 3 
reporting on Form 1042-S to the extent provided on such form and its 
accompanying instructions or under Sec.  1.1461-1(c)(2). The recipient 
information and other information required to be reported on Form 1042-
S for purposes of chapter 4 shall be in addition to the information 
required to be provided on Form 1042-S for purposes of chapter 3.
    (3) Required information. The information required to be furnished 
under this paragraph (d)(3) shall be based upon the information 
provided by or on behalf of the recipient of an amount subject to 
reporting (as corrected and supplemented based on the withholding 
agent's actual knowledge) or the presumption rules provided under Sec.  
1.1471-3(f) for a U.S. withholding agent and under Sec.  1.1471-
4(c)(3)(ii) and (c)(4)(i) for a participating FFI. The Form 1042-S must 
include the following information, if applicable--
    (i) The name, address, and EIN or GIIN (as applicable) of the 
withholding agent (as required on the instructions to the form) and the 
withholding agent's status for chapter 3 and chapter 4 purposes (as 
defined in the instructions to the form);
    (ii) A description of each category of income or payment made based 
on the income and payment codes provided on the form (for example, 
interest, dividends, and gross proceeds) and the aggregate amount in 
each category expressed in U.S. dollars;
    (iii) For the reporting required by a participating FFI under 
paragraph (d)(4)(iii)(C) of this section, the aggregate amount of 
foreign reportable amounts paid to a nonparticipating FFI in addition 
to the information described in this paragraph (d)(3);
    (iv) The rate and amount of withholding applied or, in the case of 
a payment of U.S. source FDAP income not subject to withholding and 
reportable under paragraph (d)(2)(i)(A) of this section, the basis for 
exempting the payment from withholding under chapter 4 based on 
exemption codes provided on the form);
    (v) The name and address of the recipient and its TIN or GIIN (as 
applicable) and foreign taxpayer identification number and date of 
birth (as required on the instructions to the form);
    (vi) In the case of a payment to a person (including a flow-through 
entity or U.S. branch) for which the payment is reported as effectively 
connected with its conduct of a trade or business in the United States 
or, in the case of a U.S. branch that is treated as a U.S. person, the 
EIN used by the person or U.S. branch to file its U.S. income tax 
returns;
    (vii) The name, address of any FFI, flow-through entity that is an 
NFFE, or U.S. branch or territory financial institution that is not 
treated as a U.S. person when an account holder or owner of such entity 
(including an unknown recipient or owner) is treated as the recipient 
of the payment;
    (viii) The EIN or GIIN (as applicable), status for chapter 3 and 
chapter 4 purposes (as required on the instructions to the form) of an 
entity reported under paragraph (d)(3)(vii) of this section;
    (ix) The country of incorporation or organization (based on the 
country codes provided on the form) of any entity the name of which 
appears on the form; and
    (x) Such information as the form or instructions may require in 
addition to, or in lieu of, information required under this paragraph 
(d)(3).
    (4) Method of reporting--(i) Payments by U.S. withholding agent to 
recipients. Except as otherwise provided in this paragraph (d)(4) or on 
the Form 1042-S and its accompanying instructions, a withholding agent 
that is a U.S. person (including a U.S. branch that is treated as a 
U.S. person and excluding a foreign branch of a U.S. person that is a 
QI) and that makes a payment of a chapter 4 reportable amount must file 
a separate form for each recipient that receives such amount. Except as 
otherwise provided on Form 1042-S or its instructions, only payments 
for which the income or payment code, exemption code, withholding rate, 
and recipient code are the same may be reported on a single form filed 
with the IRS. See paragraph (d)(4)(ii) of this section for reporting of 
payments made to a person that is not a recipient and that is otherwise 
required to be reported on Form 1042-S.
    (A) Payments to certain entities that are beneficial owners. If the 
beneficial owner of a payment made by a U.S. withholding agent is an 
exempt beneficial owner, an FFI, an NFFE, or a territory entity, it 
must complete Form 1042-S treating such entity as the recipient of the 
payment.
    (B) Payments to participating FFIs, deemed-compliant FFIs, and 
certain QIs. Except as otherwise provided in this paragraph 
(d)(4)(i)(B), a U.S. withholding agent that makes a payment of a 
chapter 4 reportable amount to a participating FFI or deemed-compliant 
FFI that is an NQI, NWP, or NWT must complete a Form 1042-S treating 
such FFI as the recipient. With respect to a payment of U.S. source 
FDAP income made to a participating FFI or registered deemed-compliant 
FFI that is an NQI, NWP, or NWT or QI that elects to be withheld upon 
under section 1471(b)(3) and from whom the withholding agent receives 
pooled information regarding such FFI's account holders and payees, a 
U.S. withholding agent must complete a separate Form 1042-S issued to 
the participating FFI, registered deemed-compliant FFI, or QI (as 
applicable) as the recipient with respect to each such pool of account 
holders or payees. See Sec.  1.1471-2(a)(2)(i) for the requirement of a 
withholding agent to withhold on

[[Page 5989]]

payments of U.S. source FDAP income made to a participating FFI or 
registered deemed-compliant FFI that is an NQI, NWP, or NWT. See also 
Sec.  1.1471-2(a)(2)(iii) in the case of payments made to a QI. See 
Sec.  1.1461-1(c)(4)(A) for the extent to which reporting is required 
under that section for U.S. source FDAP income that is reportable on 
Form 1042-S under chapter 3 and not subject to withholding under 
chapter 4, in which case the U.S. withholding agent must report in the 
manner described under Sec.  1.1461-1(c)(4)(ii) and paragraph 
(d)(4)(ii)(A) of this section. See paragraph (d)(4)(ii)(A) of this 
section for reporting rules applicable if participating FFIs, deemed-
compliant FFIs, or QIs provide specific payee information for reporting 
to the recipient of the payment for Form 1042-S reporting purposes. See 
paragraph (d)(4)(iii) of this section for the residual reporting 
responsibilities of an NQI, NWP, or NWT that is an FFI.
    (C) Amounts paid to a U.S. branch of a participating FFI or 
registered deemed-compliant FFI. A U.S. withholding agent making a 
payment of U.S. source FDAP income to a U.S. branch of a participating 
FFI or registered deemed-compliant FFI shall complete Form 1042-S as 
follows--
    (1) If the U.S. branch is treated as a U.S. person, the withholding 
agent treats amounts paid as effectively connected with the conduct of 
the branch's trade or business in the United States, or the U.S. branch 
is the beneficial owner of the payment, the withholding agent must file 
Form 1042-S reporting the U.S. branch as the recipient;
    (2) If the U.S. branch is not treated as a U.S. person and provides 
the withholding agent with a withholding certificate that transmits 
information regarding its reporting pools as described in paragraph 
(d)(4)(i)(B) of this section or information regarding each recipient 
that is an account holder or payee of the U.S. branch, the withholding 
agent must complete a separate Form 1042-S issued to the U.S. branch 
for each such pool to the extent required on the form and its 
accompanying instructions or must complete a separate Form 1042-S 
issued to each recipient whose documentation is associated with the 
U.S. branch's withholding certificate as described in paragraph 
(d)(4)(ii)(A) of this section and report the U.S. branch as an entity 
not treated as a recipient; or
    (3) If the U.S. branch is not treated as a U.S. person, to the 
extent its fails to provide sufficient information regarding its 
account holders or payees, the withholding agent shall report the 
recipient of the payment as an unknown recipient to the extent 
recipient information is not provided and report the U.S. branch as 
provided in paragraph (d)(4)(ii)(A) of this section for an entity not 
treated as a recipient.
    (D) Amounts paid to territory financial institutions that are flow-
through entities or acting as intermediaries. A U.S. withholding agent 
making a withholdable payment to a territory financial institution that 
is a flow-through entity or that acts as an intermediary must complete 
Form 1042-S as follows--
    (1) If the territory financial institution is treated as a U.S. 
person or is the beneficial owner of the payment, the withholding agent 
must file Form 1042-S treating the territory financial institution as 
the recipient;
    (2) If the territory financial institution is not treated as a U.S. 
person and provides the withholding agent with a withholding 
certificate that transmits information regarding each recipient that is 
an partner, beneficiary, owner, account holder, or payee, the 
withholding agent must complete a separate Form 1042-S for each 
recipient whose documentation is associated with the territory 
financial institution's withholding certificate as described in 
paragraph (d)(4)(ii)(A) of this section and must report the territory 
financial institution under that paragraph; or
    (3) If the territory financial institution is not treated as a U.S. 
person, to the extent its fails to provide sufficient information 
regarding its partners, beneficiaries, owners, account holders or 
payees, the withholding agent shall report the recipient of the payment 
as an unknown recipient and report the territory financial institution 
as provided in paragraph (d)(4)(ii)(A) of this section for an entity 
not treated as a recipient.
    (E) Amounts paid to NFFEs. A U.S. withholding agent that makes 
payments of chapter 4 reportable amounts to a passive NFFE shall 
complete Forms 1042-S treating the passive NFFE as the recipient, 
except to the extent such withholding agent treats a partner, 
beneficiary, or owner in a flow-through entity that is a passive NFFE 
as a payee. In the case of an excepted NFFE that is a flow-through 
entity, see Sec.  1.1461-1(c)(4)(A) for the extent to which reporting 
is required with respect to the partners, beneficiaries, or owners of 
such entities.
    (ii) Payments made by withholding agents to certain entities that 
are not recipients--(A) Entities that provide information for a 
withholding agent to perform specific payee reporting. If a U.S. 
withholding agent makes a payment of a chapter 4 reportable amount to a 
flow-through entity that is a passive NFFE, a nonparticipating FFI 
receiving a payment on behalf of an exempt beneficial owner, or a 
participating FFI or deemed-compliant FFI that is an NQI, NWP, or NWT, 
except as otherwise provided in paragraph (d)(4)(i)(B) of this section, 
the withholding agent must complete a separate Form 1042-S for each 
recipient that is a partner, beneficiary, owner, or account holder of 
such entity to the extent the withholding agent can reliably associate 
the payment with valid documentation (under the rules of Sec.  1.1471-
3(c) and (d)) provided by such entity, as applicable, with respect to 
each such recipient. If a payment is made through tiers of such 
entities, the withholding agent must nevertheless complete Form 1042-S 
for the recipient to the extent it can reliably associate the payment 
with documentation provided with respect to that recipient. A 
withholding agent that is completing a Form 1042-S for a recipient 
described in this paragraph (d)(4)(ii)(A) must include on the form the 
information described in paragraph (d)(3)(vii) of this section for the 
entity through which the recipient directly receives the payment.
    (B) Nonparticipating FFI that is a flow-through entity or 
intermediary. If a withholding agent makes a payment of a chapter 4 
reportable amount to a nonparticipating FFI that it is required to 
treat as an intermediary with regard to a payment or as a flow-through 
entity under rules described in Sec.  1.1471-3(c)(2)(iii), and except 
as otherwise provided in paragraph (d)(1)(ii)(A)(1)(xi) of this section 
(relating to an exempt beneficial owner), the withholding agent must 
report the recipient of the payment as an unknown recipient and report 
the nonparticipating FFI as provided in paragraph (d)(4)(ii)(A) of this 
section for an entity not treated as a recipient.
    (C) Disregarded entities. If a U.S. withholding agent makes a 
payment to a disregarded entity but receives a valid withholding 
certificate or other documentary evidence from a person that is the 
single owner of a disregarded entity, the withholding agent must file a 
Form 1042-S treating the single owner as the recipient. The GIIN on the 
form, or TIN, if required, must be the single owner's reporting 
identification number or TIN.
    (iii) Reporting by participating FFIs and deemed-compliant FFIs 
(including QIs, WPs, and WTs)--(A) In general. Except as otherwise 
provided in paragraphs (d)(4)(iii)(B) (relating to NQIs, NWPs, NWTs, 
and FFIs electing under section 1471(b)(3)) and (d)(4)(iii)(C) of this 
section (relating to

[[Page 5990]]

transitional payee specific reporting for payments to nonparticipating 
FFIs), a participating FFI or deemed-compliant FFI (including a QI, WP, 
WT, or U.S. branch of such FFIs that is not treated as a U.S. person) 
that makes a payment that is a chapter 4 reportable amount to a 
recalcitrant account holder or nonparticipating FFI, must complete a 
Form 1042-S to report such payments. A participating FFI or registered 
deemed-compliant FFI (including a QI, WP, WT or U.S. branch of such FFI 
that is not treated as a U.S. person) may report in pools consisting of 
its recalcitrant account holders and payees that are nonparticipating 
FFIs. With respect to recalcitrant account holders, the FFI may report 
in pools consisting of recalcitrant account holders within a particular 
status described in Sec.  1.1471-4(d)(6) and within a particular income 
code. Except as otherwise provided in paragraph (d)(4)(iii)(C) of this 
section, with respect to payees that are nonparticipating FFIs, the FFI 
may report in pools consisting of one or more nonparticipating FFIs 
that fall within a particular income code and within a particular 
status code described in the instructions to Form 1042-S. 
Alternatively, a participating FFI or registered deemed-compliant FFI 
(including a QI, WP, WT, or U.S. branch of such FFI that is not treated 
as a U.S. person) may (and a certified deemed-compliant FFI is required 
to) perform specific payee reporting to report a chapter 4 reportable 
amount made to a recalcitrant account holder or a nonparticipating FFI 
when withholding was applied (or should have applied) to the payment.
    (B) Special reporting requirements of participating FFIs, deemed-
compliant FFIs, and FFIs that make an election under section 
1471(b)(3). Except as otherwise provided in paragraph (d)(4)(iii)(C) of 
this section, a participating FFI or deemed-compliant FFI that is an 
NQI, NWP, NWT (including a U.S. branch of such FFI that is not treated 
as a U.S. person), or an FFI that has made an election under section 
1471(b)(3) and has provided sufficient information to its withholding 
agent to withhold and report the payment, is not required to report the 
payment on Form 1042-S as described in paragraph (d)(4)(iii)(A) of this 
section if the payment is made to a nonparticipating FFI or 
recalcitrant account holder and its withholding agent has withheld the 
correct amount of tax on such payment and correctly reported the 
payment on a Form 1042-S. Such FFI is required to report a payment, 
however, when the FFI knows or, has reason to know, that less than the 
required amount has been withheld by the withholding agent on the 
payment or the withholding agent has not correctly reported the payment 
on Form 1042-S. In such case, the FFI must report on Form 1042-S to the 
extent required under paragraph (d)(4)(iii)(A) of this section. See, 
however, Sec.  1.1471-4(d)(6) for the requirement to report certain 
aggregate information regarding accounts held by recalcitrant account 
holders on Form 8966, ``FATCA Report,'' regardless of whether 
withholdable payments are made to such accounts.
    (C) Reporting by participating FFIs and registered deemed-compliant 
FFIs (including QIs, WPs, and WTs) for certain payments made to 
nonparticipating FFIs (transitional). Except as otherwise provided in 
the instructions to Form 1042-S, if a participating FFI or registered 
deemed-compliant FFI (including a QI, WP, WT, or U.S. branch of such 
FFI that is not treated as a U.S. person) makes a payment to a 
nonparticipating FFI of a foreign reportable amount as defined in 
paragraph (d)(2)(i)(D) of this section, the FFI must report on Form 
1042-S on a payee specific basis the aggregate amount of all foreign 
reportable amounts paid by the FFI to the nonparticipating FFI and any 
payment of U.S. source FDAP income made to such nonparticipating FFI 
for whom the FFI receives the payment (and tax withheld) for each of 
the calendar years 2015 and 2016.
    (D) Reporting by U.S. branches of a participating FFI or registered 
deemed-compliant FFI that is treated as a U.S. person. A U.S. branch of 
a participating FFI or registered deemed-compliant FFI that is treated 
as a U.S. person must report amounts paid to recipients on Forms 1042-S 
in the same manner as a U.S. withholding agent under paragraph 
(d)(4)(i) of this section.
    (iv) Reporting by territory financial institutions. A territory 
financial institution that is not treated as a U.S. person will not be 
required to report on Form 1042-S if another withholding agent has 
reported the same amount with regard to the same recipient for which 
such entity would otherwise be required to file a return under this 
paragraph (d)(4)(iv) and such withholding agent has withheld the entire 
amount required to be withheld from such payment. A territory financial 
institution must, however, report payments made to recipients for whom 
it has failed to provide the appropriate documentation to another 
withholding agent or to the extent it knows, or has reason to know, 
that less than the required amount has been withheld. A territory 
financial institution that is treated as a U.S. person or is otherwise 
required under this paragraph (d)(4)(iv) to report amounts paid to 
recipients on Forms 1042-S must report in the same manner as a U.S. 
withholding agent.
    (v) Nonparticipating FFIs. A nonparticipating FFI that is a flow-
through entity or that acts as an intermediary with respect to a 
payment may file Forms 1042 and 1042-S only to report and allocate tax 
withheld to the account holders, partners, owners, or beneficiaries of 
the nonparticipating FFI.
    (vi) Other withholding agents. Any person that is a withholding 
agent that is not described in any of paragraphs (d)(4)(i) through (v) 
of this section shall file Forms 1042-S in the same manner as a U.S. 
withholding agent and in accordance with the instructions to the form.
    (e) Magnetic media reporting. A withholding agent that is not a 
financial institution and that is required to file 250 or more Form 
1042-S information returns for a taxable year must file Form 1042-S 
returns on magnetic media. See Sec.  301.6011-2(b) of this chapter for 
the requirements of a withholding agent that is not a financial 
institution with respect to the filing of Forms 1042-S on magnetic 
media. See Sec.  301.1474-1(a) of this chapter for the requirements 
applicable to a withholding agent that is a financial institution with 
respect to the filing of Forms 1042-S on magnetic media.
    (f) Indemnification of withholding agent. A withholding agent is 
indemnified against the claims and demands of any person for the amount 
of any tax it deducts and withholds in accordance with the provisions 
of chapter 4 and the regulations thereunder. A withholding agent that 
withholds based on a reasonable belief that such withholding is 
required under chapter 4 and the regulations thereunder is treated for 
purposes of section 1474 and this paragraph (f) as having withheld tax 
in accordance with the provisions of chapter 4 and the regulations 
thereunder. This paragraph (f) does not relieve a withholding agent 
from tax liability under chapter 3 or chapter 4 or the regulations 
under those chapters.
    (g) Extensions of time to file Forms 1042 and 1042-S. The IRS may 
grant an extension of time to file Form 1042 or 1042-S as described in 
Sec.  1.1461-1(g).
    (h) Penalties. For penalties and additions to tax for failure to 
file returns or file and furnish statements in accordance with this 
section, see sections 6651, 6662, 6663, 6721, 6722,

[[Page 5991]]

6723, 6724(c), 7201, 7203, and the regulations under those sections. 
For penalties and additions to tax for failure to timely pay the tax 
required to be withheld under chapter 4, see sections 6656, 6672, 7202, 
and the regulations under those sections.
    (i) Additional reporting requirements with respect to U.S. owned 
foreign entities and owner-documented FFIs--(1) Reporting by certain 
withholding agents with respect to owner-documented FFIs. Beginning in 
calendar year 2014, if a withholding agent (other than an FFI reporting 
accounts held by owner-documented FFIs under Sec.  1.1471-4(d)) makes 
during a calendar year a payment of a chapter 4 reportable amount to an 
entity account holder or payee of an obligation and the withholding 
agent treats the entity as an owner-documented FFI under Sec.  1.1471-
3(d)(6), the withholding agent is required to report for such calendar 
year with respect to each specified U.S. person that has a direct or 
indirect debt or equity interest in such entity. Such report must be 
made on Form 8966 (or such other form as the IRS may prescribe) and 
filed on or before March 31 of the calendar year following the year in 
which the withholdable payment was made. The report must contain the 
following information--
    (i) The name of the owner-documented FFI;
    (ii) The name, address, and TIN of each specified U.S. person 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1);
    (iii) The total of all payments made to the owner-documented FFI;
    (iv) The account balance or value of the account held by the owner-
documented FFI; and
    (v) Any other information required on Form 8966 and its 
accompanying instructions provided for purposes of such reporting.
    (2) Reporting by certain withholding agents with respect to U.S. 
owned foreign entities that are NFFEs. Beginning in calendar year 2014, 
in addition to the reporting on Form 1042-S required under paragraph 
(d)(4)(i)(E) of this section, a withholding agent (other than an FFI 
reporting accounts held by NFFEs under Sec.  1.1471-4(d)) that receives 
information about any substantial U.S. owners of an NFFE that is not an 
excepted NFFE as defined in Sec.  1.1472-1(c) shall file a report with 
the IRS for such calendar year with respect to any substantial U.S. 
owners of such NFFE. Such report must be made on Form 8966 (or such 
other form as the IRS may prescribe) and filed on or before March 31 of 
the calendar year following the year in which the withholdable payment 
was made. The report must contain the following information--
    (i) Name of the NFFE that is owned by a substantial U.S. owner;
    (ii) The name, address, and TIN of each substantial U.S. owner of 
such NFFE;
    (iii) The total of all payments made to the NFFE; and
    (iv) Any other information as required by the form and its 
accompanying instructions.
    (3) Cross reference to reporting by participating FFIs. For the 
reporting requirements of a participating FFI with respect to an 
account holder that is a U.S. owned foreign entity or that it treats as 
an owner-documented FFI, see Sec.  1.1471-4(d).
    (j) Effective/applicability date. This section generally applies on 
January 28, 2013. For other dates of applicability see Sec. Sec.  
1.1474-1(d)(4)(iii)(C) and 1.1474-1(i).

0
Par. 14. Section 1.1474-2 is added to read as follows:


Sec.  1.1474-2  Adjustments for overwithholding or underwithholding of 
tax.

    (a) Adjustments of overwithheld tax--(1) In general. Except as 
otherwise provided by this section, a withholding agent that has 
overwithheld tax under chapter 4 and made a deposit of the tax as 
provided in Sec.  1.6302-2(a) may adjust the amount of overwithheld tax 
either pursuant to the reimbursement procedure described in paragraph 
(a)(3) of this section or pursuant to the set-off procedure described 
in paragraph (a)(4) of this section. Adjustments under this paragraph 
(a) may only be made within the time prescribed under paragraph (a)(3) 
or (a)(4) of this section. After such time, a refund of the amount of 
overwithheld tax can only be claimed pursuant to the procedures 
described in Sec.  1.1474-5 and chapter 65 of the Code and the 
regulations thereunder.
    (2) Overwithholding. For purposes of this section, the term 
overwithholding means an amount actually withheld (determined before 
application of the adjustment procedures under this section and 
regardless of whether such overwithholding was in error or appeared 
correct at the time it occurred) from an item of income or other 
payment pursuant to chapter 4 that is in excess of the greater of--
    (i) The amount required to be withheld with respect to such item of 
income or other payment under chapter 4; and
    (ii) The actual tax liability of the beneficial owner that is 
attributable to the income or payment from which the amount was 
withheld.
    (3) Reimbursement of tax--(i) General rule. Under the reimbursement 
procedure, the withholding agent may repay the beneficial owner or 
payee for an amount of overwithheld tax. In such case, the withholding 
agent may reimburse itself by reducing, by the amount actually repaid 
to the beneficial owner or payee, the amount of any deposit of tax made 
by the withholding agent under Sec.  1.6302-2(a)(1)(iii) for any 
subsequent payment period occurring before the end of the calendar year 
following the calendar year of overwithholding. A withholding agent 
must obtain valid documentation as described under Sec.  1.1471-3(c)(6) 
with respect to the beneficial owner or payee supporting a reduced rate 
of withholding before reducing the amount of any deposit of tax under 
this paragraph (a)(3)(i). Any such reduction that occurs for a payment 
period in the calendar year following the calendar year of 
overwithholding shall be allowed only if--
    (A) The repayment of the beneficial owner or payee occurs before 
the earlier of the due date (without regard to extensions) for filing 
the Form 1042-S for the calendar year of overwithholding or the date 
that the Form 1042-S is actually filed with the IRS;
    (B) The withholding agent states on a timely filed (not including 
extensions) Form 1042-S the amount of tax withheld and the amount of 
any actual repayment; and
    (C) The withholding agent states on a timely filed (not including 
extensions) Form 1042 for the calendar year of overwithholding that the 
filing of the Form 1042 constitutes a claim for credit in accordance 
with Sec.  1.6414-1.
    (ii) Record maintenance. If the beneficial owner or payee is repaid 
an amount of overwithheld tax under the provisions of this paragraph 
(a)(3), the withholding agent shall keep as part of its records a 
receipt showing the date and amount of repayment, and the withholding 
agent must provide a copy of such receipt to the beneficial owner or 
payee. For this purpose, a canceled check or an entry in a statement is 
sufficient, provided that the check or statement contains a specific 
notation that it is a refund of tax overwithheld.
    (4) Set-offs. Under the set-off procedure, the withholding agent 
may repay the beneficial owner or payee for an amount of overwithheld 
tax by applying the amount overwithheld against any amount which 
otherwise would be required under chapter 3 or 4 to be withheld from 
the amount paid by the withholding agent to such person before the 
earlier of the due date (without regard to extensions) for filing the 
Form 1042-S for the calendar year of overwithholding or the date that 
the

[[Page 5992]]

Form 1042-S is actually filed with the IRS. For purposes of making a 
return on Form 1042 or 1042-S (or an amended form) for the calendar 
year of overwithholding and for purposes of making a deposit of the 
amount withheld, the reduced amount shall be considered the amount 
required to be withheld from such payment under chapter 3 or 4, 
respectively.
    (5) Examples. The principles of this paragraph (a) are illustrated 
by the following examples:

    Example 1. (i) Fund A is a unit investment trust that is an FFI 
and a resident of Country X. Fund A also qualifies for the benefits 
of the income tax treaty between the United States and Country X. On 
December 1, 2016, domestic corporation C pays a dividend of $100 to 
Fund A, at which time C withholds $30 of tax pursuant to Sec.  
1.1471-2(a) and remits the balance of $70 to Fund A, because it does 
not hold valid documentation that Fund A is a participating FFI or 
deemed-compliant FFI. On February 10, 2017, prior to the time that C 
is obligated to file its Form 1042, Fund A furnishes a valid Form W-
8BEN described in Sec. Sec.  1.1441-1(e)(2)(i) and 1.1471-
3(c)(3)(ii) upon which C may rely to treat Fund A as the beneficial 
owner of the income and as a participating FFI so that C may reduce 
the rate of withholding to 15% under the provisions of the United 
States-Country X income tax treaty with respect to the payment. C 
repays the excess tax withheld of $15 to Fund A.
    (ii) During the 2016 calendar year, C makes no other payments 
upon which tax is required to be withheld under chapter 3 or 4; 
accordingly, its Form 1042 for such year, filed on March 15, 2017, 
shows total tax withheld of $30, an adjusted total tax withheld of 
$15, and tax deposited of $30 for such year. Pursuant to Sec.  
1.6414-1, C claims a credit for the overpayment of $15 shown on the 
Form 1042 for 2016. Accordingly, C is permitted to reduce by $15 any 
deposit required by Sec.  1.6302-2 to be made of tax withheld during 
the 2017 calendar year with respect to taxes due under chapter 3 or 
4. The Form 1042-S required to be filed by C with respect to the 
dividend of $100 paid to Fund A in 2016 is required to show tax 
withheld of $30 and tax repaid of $15 to Fund A.
    Example 2.  (i) In November 2016, Bank A, a foreign bank 
organized in Country X that is an NQI, receives on behalf of one of 
its account holders, Z, an individual, a $100 dividend payment from 
C, a domestic corporation. At the time of payment, C withholds $30 
pursuant to Sec.  1.1471-2(a) and remits the balance of $70 to Bank 
A, because it does not hold valid documentation that it may rely on 
to treat Bank A as a participating FFI or deemed-compliant FFI. In 
December 2016, prior to the time that C files its Forms 1042 and 
1042-S, Bank A furnishes a valid Form W-8IMY and FFI withholding 
statement described in Sec.  1.1471-3(c)(3)(iii) that establishes 
Bank A's status as a participating FFI that is an NQI, as well as a 
valid Form W-8BEN that has been completed by Z as described in Sec.  
1.1471-3(c)(3)(ii) and Sec.  1.1441-1(e)(2)(i) upon which C may rely 
to treat the payment as made to Z, a nonresident alien individual 
who is a resident of Country X eligible for a reduced rate of 
withholding of 15% under the income tax treaty between the United 
States and Country X. Although C has already deposited the $30 that 
was withheld, as required by Sec.  1.6302-2(a)(1)(iv), C remits the 
amount of $15 to Bank A for the benefit of Z.
    (ii) During the 2016 calendar year, C makes no other payments 
upon which tax is required to be withheld under chapter 3 or 4; 
accordingly, its return on Form 1042 for such year, which is filed 
on March 15, 2017, shows total tax withheld of $30, an adjusted 
total tax withheld of $15, and tax deposited of $30. Pursuant to 
Sec.  1.6414-1(b), C claims a credit for the overpayment of $15 
shown on the Form 1042 for 2014. Accordingly, it is permitted to 
reduce by $15 any deposit required by Sec.  1.6302-2 to be made of 
tax withheld during the 2017 calendar year. The Form 1042-S required 
to be filed by C for 2016 with respect to the dividend of $100 
beneficially owned by Z is required to show tax withheld of $30 and 
tax repaid of $15 to Z.

    (b) Withholding of additional tax when underwithholding occurs. A 
withholding agent that has underwithheld under chapter 4 may apply the 
procedures described in Sec.  1.1461-2(b) (by substituting the term 
``chapter 4'' for ``chapter 3'') to satisfy its withholding obligations 
under chapter 4 with respect to a payee or beneficial owner.
    (c) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 15. Section 1.1474-3 is added to read as follows:


Sec.  1.1474-3  Withheld tax as credit to beneficial owner of income.

    (a) Creditable tax. The entire amount of the income, if any, 
attributable to a payment from which tax is required to be withheld 
under chapter 4 (including income deemed paid by a withholding agent 
under Sec.  1.1473-1(a)(2)(v)) shall be included in gross income in a 
return required to be made by the beneficial owner of the income, 
without deduction for the amount required to be or actually withheld, 
but the amount of tax actually withheld shall be allowed as a credit 
against the total income tax computed in the beneficial owner's return.
    (b) Amounts paid to persons that are not the beneficial owners. 
Amounts actually deducted and withheld under chapter 4 on payments made 
to a fiduciary, agent, partnership, trust, or intermediary are deemed 
to have been paid by the beneficial owner of the item of income or 
other payment subject to withholding under chapter 4, except when the 
fiduciary, agent, partnership, trust, or intermediary pays the tax from 
its own funds and does not in turn withhold with respect to the payment 
made to such person. Thus, for example, if a beneficiary of a trust is 
subject to the taxes imposed by section 1, 2, 3, or 11 upon any amount 
of distributable net income or other taxable distribution received from 
a foreign trust, the part of any amount withheld at source under 
chapter 4 that is properly allocable to the income so taxed to such 
beneficiary shall be credited against the amount of the income tax 
computed upon the beneficiary's return, and any excess shall be 
refunded to the beneficiary in accordance with Sec.  1.1474-5 and 
chapter 65 of the Code.
    (c) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 16. Section 1.1474-4 is added to read as follows:


Sec.  1.1474-4  Tax paid only once.

    (a) Tax paid. If the tax required to be withheld under chapter 4 on 
a payment is paid by the payee, beneficial owner, or the withholding 
agent, it shall not be re-collected from any other, regardless of the 
original liability therefor. However, this section does not relieve a 
person that was required to, but did not, withhold tax from liability 
for interest or any penalties or additions to tax otherwise applicable.
    (b) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 17. Section 1.1474-5 is added to read as follows:


Sec.  1.1474-5  Refunds or credits.

    (a) Refund and credit--(1) In general. Except to the extent 
otherwise provided in this section, a refund or credit of tax which has 
actually been withheld at the source at the time of payment under 
chapter 4 shall be made to the beneficial owner of the payment to which 
the amount of withheld tax is attributable if the beneficial owner or 
payee meets the requirements of this paragraph (a) and any other 
requirements that may be required under chapter 65. To the extent that 
the amount withheld under chapter 4 is not actually withheld at source, 
but is later paid by the withholding agent to the IRS, the refund or 
credit under chapter 65 of the Code shall be made to the withholding 
agent to the extent the withholding agent provides documentation with 
respect to the beneficial owner or payee described in paragraphs (a)(2) 
and (3) of this section sufficient for the beneficial owner or payee to 
have obtained a refund of the tax and sufficient for the withholding 
agent to have applied a reduced rate or exemption from withholding 
under chapter 4. The preceding sentence shall not, however, apply to a 
nonparticipating FFI that is acting as a withholding agent with respect 
to one or

[[Page 5993]]

more of its account holders. In such a case, only the account holders 
of the nonparticipating FFI will be entitled to a credit or refund of 
an amount withheld under chapter 4, to the extent otherwise allowable 
under this section. Additionally, there are collective refund 
procedures for a participating FFI or reporting Model 1 FFI to claim a 
refund or credit on behalf of certain direct account holders that are 
beneficial owners of the payment under Sec.  1.1471-4(h) (in lieu of 
such account holders claiming refund or credit under this paragraph 
(a)(1)).
    (2) Limitation to refund and credit for a nonparticipating FFI. 
Notwithstanding paragraph (a)(1) of this section, a nonparticipating 
FFI (determined as of the time of payment) that is the beneficial owner 
of an item of income or other payment that is subject to withholding 
under chapter 4 shall not be entitled to any credit or refund pursuant 
to section 1474(b)(2) and this section unless it is entitled to a 
reduced rate of tax with respect to the income or other payment by 
reason of any treaty obligation of the United States. If the 
nonparticipating FFI is entitled to a reduced rate of tax with respect 
to an item of income or other payment by reason of any treaty 
obligation of the United States, the amount of any credit or refund 
with respect to such tax shall not exceed the amount of credit or 
refund attributable to such reduction in rate on the item of income or 
other payment, and no interest otherwise allowable under section 6611 
shall be allowed or paid with respect to such credit or refund.
    (3) Requirement to provide additional documentation for certain 
beneficial owners--(i) In general. Except as provided in paragraph 
(a)(3)(ii) of this section, no refund or credit shall be allowed under 
paragraph (a)(1) of this section to the beneficial owner of the income 
or other payment to which the amount of such withheld tax was 
attributable if such beneficial owner is an NFFE, unless the NFFE 
attaches to its income tax return the information described in 
paragraph (a)(3)(iii) of this section.
    (ii) Claim of reduced withholding under an income tax treaty. 
Paragraph (a)(3)(i) of this section does not apply to the extent that 
the beneficial owner is entitled to a reduced rate of tax with respect 
to the income or other payment by reason of any treaty obligation of 
the United States.
    (iii) Additional documentation to be furnished to the IRS for 
certain NFFEs. The information described in this paragraph (a)(3)(iii) 
is--
    (A) A certification that the beneficial owner does not have any 
substantial U.S. owners;
    (B) The form described in Sec.  1.1474-1(i)(2) relating to each 
substantial U.S. owner of such entity; or
    (C) Other appropriate documentation to establish withholding was 
not required under chapter 4.
    (b) Tax repaid to payee. For purposes of this section and Sec.  
1.6414-1, any amount of tax withheld under chapter 4, which, pursuant 
to Sec.  1.1474-2(a)(1), is repaid by the withholding agent to the 
beneficial owner of the income or payment to which the withheld amount 
is attributable shall be considered as tax which, within the meaning of 
sections 1474 and 6414, was not actually withheld by the withholding 
agent.
    (c) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 18. Section 1.1474-6 is added to read as follows:


Sec.  1.1474-6  Coordination of chapter 4 with other withholding 
provisions.

    (a) In general. This section coordinates the withholding 
requirements of a withholding agent when a withholdable payment or 
foreign passthru payment is subject to withholding under both chapter 4 
and another Code provision. See Sec.  1.1473-1(a) for the definition of 
withholdable payment and see Sec.  1.1471-5(h)(2) for the definition of 
foreign passthru payment.
    (b) Coordination of withholding for amounts subject to withholding 
under sections 1441, 1442, and 1443--(1) In general. In the case of a 
withholdable payment that is both subject to withholding under chapter 
4 and is an amount subject to withholding under Sec.  1.1441-2(a), a 
withholding agent may credit the withholding applied under chapter 4 
against its liability for any tax due under sections 1441, 1442, or 
1443. See Sec.  1.1474-1(c) and (d) for the income tax return and 
information return reporting requirements that apply in the case of a 
payment that is a withholdable payment subject to withholding under 
chapter 4 that is also an amount subject to withholding under Sec.  
1.1441-2(a).
    (2) When withholding is applied. For purposes of paragraph (b)(1) 
of this section, withholding is applied by a withholding agent under 
section 1441 (or section 1442 or 1443) or chapter 4 (as applicable) 
when the withholding agent has withheld on the payment and has 
designated the withholding as having been made under section 1441 (or 
section 1442 or 1443) or chapter 4 to the extent required in the 
reporting described in Sec.  1.1474-1(c) and (d). For purposes of 
allowing an offset of withholding and allowing a credit to a 
withholding agent against its liability for such tax as described in 
paragraph (b)(1) of this section, withholding is treated as applied for 
purposes of paragraph (a) of this section only when the withholding 
agent has actually withheld on a payment and has not made any 
adjustment for overwithheld tax applicable to the amount withheld that 
would otherwise be permitted with respect to the payment.
    (3) Special rule for certain substitute dividend payments. In the 
case of a dividend equivalent under section 871(m) paid pursuant to a 
securities lending transaction described in section 1058 (or a 
substantially similar transaction), or pursuant to a sale-repurchase 
transaction, a withholding agent may offset its obligation to withhold 
under chapter 4 for amounts withheld by another withholding agent under 
chapters 3 and 4 with respect to the same underlying security in such a 
transaction, but only to the extent that there is sufficient evidence 
as required under chapter 3 that tax was actually withheld on a prior 
dividend equivalent paid to the withholding agent or a prior 
withholding agent with respect to the same underlying security in such 
transaction.
    (c) Coordination with amounts subject to withholding under section 
1445--(1) In general. An amount subject to withholding under section 
1445 is not subject to withholding under chapter 4 as described in 
paragraphs (c)(2)(i) and (ii) of this section.
    (2) Determining the amount of the distribution from certain 
domestic corporations subject to section 1445 or chapter 4 
withholding--(i) Distribution from qualified investment entity. In the 
case of a passthru payment (including a withholdable payment) subject 
to withholding under chapter 4 that is a distribution with respect to 
the stock of a qualified investment entity as described in section 
897(h)(4)(A), withholding under chapter 4 does not apply when 
withholding under section 1445 applies to such amounts. With respect to 
the portion of such distribution that is not subject to withholding 
under section 1445 but is subject to withholding under section 1441 (or 
section 1442 or 1443) and chapter 4, the coordination rule described in 
paragraph (b)(1) of this section shall apply.
    (ii) Distribution from a United States real property holding 
corporation. A distribution (or portion of a distribution) from a 
United States real property holding corporation (or from a corporation 
that was a United States real property holding corporation at any time 
during the five-year period ending

[[Page 5994]]

on the date of the distribution) with respect to its stock that is a 
United States real property interest under section 897(c) is subject to 
withholding under chapter 4 and is also subject to the withholding 
provisions of section 1441 (or section 1442 or 1443) and section 1445. 
In such case, to the extent that the United States real property 
holding corporation chooses to withhold on a distribution only under 
section 1441 (or section 1442 or 1443) pursuant to Sec.  1.1441-
3(c)(4)(i)(A), the coordination rule described in paragraph (b)(1) of 
this section shall apply to such distribution. Alternatively, to the 
extent that the United States real property holding corporation chooses 
to withhold under both section 1441 (or section 1442 or 1443) and 
section 1445 pursuant to Sec.  1.1441-3(c)(4)(i)(B), the coordination 
rule described in paragraph (b)(1) of this section shall apply to the 
portion of such distribution described in Sec.  1.1441-
3(c)(4)(i)(B)(1), and withholding under section 1445 shall apply to the 
amount of such distribution described in Sec.  1.1441-3(c)(4)(i)(B)(2). 
A withholding agent other than a United States real property holding 
corporation may rely, absent actual knowledge or reason to know 
otherwise, on the representations of the United States real property 
holding corporation making the distribution regarding the portion of 
the distribution that is estimated to be a dividend under Sec.  1.1441-
3(c)(2)(ii)(A), and in the case of a failure by the withholding agent 
to withhold under chapter 4 due to this reliance, the required amount 
shall be imputed to the United States real property holding 
corporation.
    (d) Coordination with section 1446--(1) In general. Except as 
otherwise provided in paragraph (d)(2) of this section, a withholdable 
payment or a foreign passthru payment subject to withholding under 
section 1446 shall not be subject to withholding under chapter 4. See 
Sec.  1.1473-1(a)(4)(ii) for the exclusion from withholdable payment 
and the requirements for such exclusion for any item of income that is 
taken into account under section 871(b)(1) or 882(a)(1) for the taxable 
year.
    (2) Determining the amount of distribution subject to section 1446. 
[Reserved].

    (e) Example  Chapter 4 withholding satisfies chapter 3 
withholding obligation. WA, a U.S. withholding agent, makes a 
payment consisting of a dividend from sources within the United 
States to NPFFI. NPFFI is a nonparticipating FFI that is a resident 
of Country X, a country that has an income tax treaty in force with 
the United States that would allow WA to reduce the rate of 
withholding for section 1442 purposes on a payment of U.S. source 
dividends paid to NPFFI to 15%. Because the payment is a 
withholdable payment and NPFFI is a nonparticipating FFI, WA 
withholds on the payment at the rate of 30% under chapter 4. WA does 
not make any adjustment for overwithholding that is otherwise 
permitted with respect to this payment. Although the payment is also 
an amount subject to withholding under section 1442, WA is not 
required to withhold any tax on this payment under section 1442. WA 
may credit its withholding applied under chapter 4 against the 
amount of tax otherwise required to be withheld on this payment 
under section 1442. See Sec.  1.1474-5(a)(2) for the credit and 
refund procedures for nonparticipating FFIs that are entitled to a 
reduced rate of tax with respect to an amount subject to withholding 
under chapter 4 by reason of any treaty obligation of the United 
States.

    (f) Effective/applicability date. This section applies January 28, 
2013.

0
Par. 19. Section 1.1474-7 is added to read as follows:


Sec.  1.1474-7  Confidentiality of information.

    (a) Confidentiality of information. Pursuant to section 1474(c)(1), 
the provisions of Sec.  31.3406(f)-1(a) of this chapter shall apply 
(substituting ``sections 1471 through 1474'' for ``section 3406'') to 
information obtained or used in connection with the requirements of 
chapter 4.
    (b) Exception for disclosure of participating FFIs. Pursuant to 
section 1474(c)(2), the identity of a participating FFI or deemed-
compliant FFI shall not be treated as return information for purposes 
of section 6103.
    (c) Effective/applicability date. This section applies January 28, 
2013.

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 20. The authority citation for part 301 is amended by adding 
an entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805.
    Section 301.1474-1 also issued under 26 U.S.C. 1474(f). * * *


0
Par. 21. Section 301.1474-1 is added to read as follows:


Sec.  301.1474-1  Required use of magnetic media for financial 
institutions filing Form 1042-S or Form 8966.

    (a) Financial institutions filing certain information returns. If a 
financial institution is required to file a Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding,'' (or such other 
form as the IRS may prescribe) under Sec.  1.1474-1(d) of this chapter, 
the financial institution must file the information required by the 
applicable forms and schedules on magnetic media. Additionally, if a 
financial institution is required to file Form 8966, ``FATCA Report,'' 
(or such other form as the IRS may prescribe) to report certain 
information about U.S. accounts, substantial U.S. owners of foreign 
entities, or owner-documented FFIs as required under this chapter, the 
financial institution must file the required information on magnetic 
media or other machine-readable form. Returns filed on magnetic media 
must be made in accordance with applicable regulations, revenue 
procedures, publications, forms, instructions, and the IRS.gov Internet 
site. In prescribing regulations, revenue procedures, publications, 
forms, and instructions, including those on the IRS.gov Internet site, 
the Commissioner may direct the type of magnetic media or other 
machine-readable form used for filing.
    (b) Waiver. The Commissioner may grant waivers from the 
requirements of this section in cases of undue hardship. A request for 
waiver must be made in accordance with applicable revenue procedures or 
publications. The waiver also will be subject to such terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If a financial institution fails to file a 
Form 1042-S or a Form 8966 on magnetic media when required to do so by 
this section, the financial institution is deemed to have failed to 
comply with the information reporting requirements under section 6723 
of the Code. See section 6724(c) for failure to meet magnetic media 
requirements. In determining whether there is reasonable cause for 
failure to file the return, Sec.  301.6651-1(c) and rules similar to 
the rules in Sec.  301.6724-1(c)(3) (undue economic hardship related to 
filing information returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section--(1) Magnetic media. The term magnetic media means any 
magnetic media permitted under applicable regulations, revenue 
procedures, publications, forms, or instructions. These generally 
include magnetic tape, tape cartridge, and diskette, as well as other 
media, such as electronic filing, specifically permitted under the 
applicable regulations, revenue procedures, publications, forms, or 
instructions.
    (2) Financial institution. The term financial institution has the 
meaning set forth in section 1471(d)(5) of the Code and the regulations 
thereunder.
    (e) Effective/applicability date. This section applies to any Form 
1042-S or Form 8966 (or any other form that the

[[Page 5995]]

IRS may prescribe) filed with respect to calendar years ending after 
December 31, 2013.

 Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: January 11, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-01025 Filed 1-17-13; 4:15 pm]
BILLING CODE 4830-01-P