April 22, 2024

Revised IRS Form W-9 impacts disregarded entities and their owners as well as US partnerships with foreign owners

Mary Monahan, Jonathan Sambur, Theodore Smith, H. Karl Zeswitz

Eversheds Sutherland (US) LLP

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Eversheds Sutherland (US) LLP

I. Introduction

The IRS recently released a revised version of Form W-9, Request for Taxpayer Identification Number and Certification, bearing a March 2024 revision date. The revised Form W-9 modifies line 3a and includes a new line 3b. As discussed further below, the modification of line 3a is intended to clarify the manner in which a disregarded entity completes the form, and line 3b is intended to provide additional information to the requestor to identify whether the taxpayer should receive schedule K-2 or K-3.

Eversheds Sutherland Observation: It is important to note that Form W-9 does not expire, therefore there is no need to collect new W-9s from existing payees. That being said, it is best practice to solicit the most recent version of Form W-9 from new payees.

II. Form W-9

IRS Form W-9 is used by US persons to furnish their correct name, address, and taxpayer identification number (TIN) to the person requesting the form. Form W-9 is not typically provided to the IRS, but is provided to an individual or entity that generally must use the information, contained therein, to satisfy its own US tax information reporting or withholding obligations with respect to payments made to the person furnishing the form. For instance, a properly completed and signed Form W-9 may be relied upon to avoid backup withholding to a payee.

III. Line 3a
As noted above, the W-9 modified line 3a to clarify the manner in which a disregarded entity would compete a W-9. The IRS understood that disregarded entities were completing line 3a by referencing their own legal form, rather than that of their owner. The IRS has attempted to resolve this confusion by clarifying, on the form itself, that line 3a should be used to identify the federal tax classification of the regarded single owner of the disregarded entity. In addition, the general instructions to the Form W-9 state that for proper processing, information for disregarded entities is reported as the owner’s name on line 1, and the disregarded entity’s name is entered on line 2.

IV. Line 3b
The IRS also included a new line 3b on the Form W-9. Line 3b includes an additional checkbox for partnerships (including limited liability companies (LLCs) classified as partnerships for US federal tax purposes), trusts, or estates to indicate that they have foreign partners, owners, or beneficiaries when providing a W-9 to a partnership, trust or estate in which it has an ownership interest. The purpose of this change is to provide the recipient of the Form W-9 with information regarding the status of its indirect foreign partners, owners, or beneficiaries, so that it can satisfy any applicable IRS information reporting requirements. In practical terms, line 3b is to alert the recipient of the Form W-9 that it may be required to complete Schedules K-2 and K-3. It is important to note that line 3b is intended to document indirect ownership of the recipient of the Form W-9 and therefore is not completed by non-owner payees, such as unrelated vendors.

Eversheds Sutherland Observation: Partnerships, trusts or estates that receive the new Form W-9 from an owner with a check in the box on Line 3b may be surprised to learn that they have indirect foreign ownership, and, in turn, may not be prepared for the resulting IRS information reporting obligations.

Even if the new Form W-9 has not been received or has been received with the box on Line 3b left unchecked, if the recipient of the Form W-9 has actual knowledge of indirect foreign ownership, the recipient may not rely on the lack of a check in the box on Form W-9. In such a case, recipients may choose to request a new Form W-9 that correctly reflects indirect foreign owner status on Line 3b, however the form may otherwise be relied until such time a new form is provided.

In the absence of actual knowledge of indirect foreign ownership, if a Form W-9 is received with the box on Line 3b left unchecked, there is some uncertainty whether recipients that do not have actual knowledge of indirect foreign ownership may nevertheless be deemed to have reason to know of such ownership if other records in their possession indicate that there are foreign partners, owners or beneficiaries.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.