IRS Releases Draft Form to Certify Status Of Individuals for Withholding Under FATCA

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[authors: Sherwin P. Simmons, II, Jonathan E. GopmanBarbara E. Ruiz-Gonzalez, and Leanne Reagan]

On September 11, 2012, the Internal Revenue Service (“IRS”) released a new draft version of Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individuals).  This Form is used to certify the status of individuals for withholding purposes under the Foreign Account Tax Compliance Act (“FATCA”). 

FATCA passed as part of the Hiring Incentives to Restore Employment (HIRE) Act enacted in March 2010 and added a requirement which generally provides that a foreign financial institution (“FFI”) will need to be registered with the IRS in order to avoid a 30% withholding tax on certain payments (generally U.S. source passive income and gross proceeds from the sale of U.S. securities) starting in 2013.

On February 8, 2012, the Treasury Department issued proposed regulations governing FATCA and the implementation of FATCA which require foreign persons to document their status to their FFI. (see our Practice Update discussing the proposed regulations). The new requirement is very similar to the longstanding requirement under which U.S. withholding agents are required to document the status of foreign beneficial owners of payments on U.S. source income, which they satisfy by obtaining the applicable Forms W-8.

The new draft form contains few changes, but incorporates all of the information necessary to address both the prior and new FATCA requirements.  For individuals, the only change to the new draft form is that it requires individuals to provide a foreign tax identifying number, subject to the instructions.  It is possible that instructions to the form could require taxpayers to provide a birthdate if a foreign tax ID number is not available.

Earlier this summer, the IRS also released modified draft versions of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, and Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, for entities. (See our Practice Update).

However, the IRS has not yet released drafts of instructions for completing any of the new forms.