Yesterday, the IRS added three new FAQs to its list of frequently asked questions on compliance with the Foreign Account Tax Compliance Act (“FATCA”). The questions address the need for withholding agents to obtain foreign TINs or dates of birth for nonresident alien or foreign entity on beneficial owner withholding certificates, e.g., Forms W-8BEN and W-8BEN-E. The FAQs address the requirement under temporary regulations published in the Federal Register on January 6, 2017, that a beneficial owner withholding certificate contains a foreign TIN and, in the case of an individual, a date of birth in order to be considered valid.
FAQ #20 clarifies when a withholding agent must collect a foreign TIN or date of birth on a beneficial owner withholding certificate. In general, withholding agents must obtain a foreign TIN if either (1) the foreign person is claiming a reduced rate of withholding under an income tax treaty and the foreign person does not provide a U.S. TIN and a TIN is required to make a treaty claim or (2) the foreign person is an account holder of a financial account maintained at a U.S. office or branch of the withholding agent and the withholding agent is a financial institution. However, a withholding certificate that does not contain a foreign TIN may still be treated as valid with respect to payments made in 2017 in the absence of actual knowledge on the part of the withholding agent that the individual has a foreign TIN. For payments made on or after January 1, 2018, a beneficial owner withholding certificate that does not contain a foreign TIN will be invalid unless the beneficial owner provides a reasonable explanation for its absence, such as that the country of residence does not issue TINs.
Consistent with the language of the temporary regulations, FAQ #21 clarifies that a withholding agent may treat a beneficial owner withholding certificate provided by an individual after January 1, 2017, as valid even if it does not contain a date of birth if the withholding agent otherwise has the individual’s date of birth in its records.
Finally, FAQ #22 clarifies that if a beneficial owner provides an otherwise valid withholding certificate that fails to include its foreign TIN, the beneficial owner may provide the foreign TIN to the withholding agent in a written statement (that may be an email) from the beneficial owner that includes the foreign TIN and a statement indicating that the foreign TIN is to be associated with the beneficial owner withholding certificate previously provided. If the beneficial owner does not have a foreign TIN, the beneficial owner may provide the reasonable explanation required after January 1, 2018, in a similar written statement.
While helpful, the FAQs continue a growing trend toward subregulatory guidance from the IRS. Because the guidance does not require the same level of review as more formal guidance, it can be issued more quickly. However, informal guidance, such as FAQs, can be difficult to rely on because it may disappear or change without notice and typically is not binding on the IRS.