Wednesday January 17, 2001
IRS Proposed Rules (REG-126100-00) on Reporting
Of Deposit Interest Paid to Nonresident Aliens
REG-126100-00 is scheduled to appear in the Federal Register Jan. 17, 2001.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 31
Guidance on Reporting of Deposit Interest Paid to Nonresident Aliens
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This document contains proposed regulations that provide guidance on the reporting requirements for interest on deposits maintained at the U.S. office of certain financial
institutions and paid to nonresident alien individuals. These proposed regulations affect persons making payments of interest with respect to such a deposit. This document also provides a notice of public hearing on
these proposed regulations.
DATES: Written or electronic comments must be received by February 27, 2001. Requests to speak (with outlines of oral comments to be discussed) at the public hearing scheduled for
10 a.m. on March 21, 2001, must be received by February 27, 2001.
ADDRESSES: Send submissions to: CC:M&SP:RU (REG-126100-00), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions also may be
hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU (REG-126100-00), Courier's Desk, Internal Revenue Service 1111 Constitution Avenue, NW., Washington, DC. Alternatively,
taxpayers may submit comments electronically via the Internet by selecting the ''Tax Regs'' option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at
http://www.irs.gov/tax-regs/regslist.html. The public hearing will be held in Room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Kate Y. Hwa (202), 622-3840 (not a toll free number); concerning submissions of comments, the hearing, and/or
to be placed on the building access list to attend the hearing, La Nita Van Dyke, (202) 622-7180 (not a toll free number).
Paperwork Reduction Act
The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of
Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, Washington, DC 20224. Comments on the collections of
information should be received by April 16, 2001. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the proper operation of the functions of the IRS, including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed collection of information (see below);
How the quality, utility, and clarity of the information to be collected may be enhanced;
How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of
information technology; and
Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.
The collection of information in these proposed regulations is in §§1.6049-4(b)(5)(i), 1.6049-6(e)(4)(i), and (ii). This information is required to determine if taxpayers have
properly reported amounts received as income. The collection of information is mandatory. The likely respondents are businesses and other for-profit institutions.
The estimated average annual burden per respondent and/or recordkeeper required by §§1.6049-4(b)(5)(i), 1.6049-6(e)(4)(i), and (ii) will be reflected in the burdens of Forms W-8,
1042, 1042-S, and the income tax return of a foreign person.
Further, the estimated average annual burden per respondent and/or recordkeeper for the statement required by §1.6049-6(e)(4)(i) is as follows:
Estimated total annual reporting burden: 500 hours.
Estimated average annual burden per respondent: 15 minutes.
Estimated number of respondents: 2,000.
Estimated annual frequency of responses: annually.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number
assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
The IRS previously determined that information concerning interest paid on deposits from U.S. bank accounts to nonresident alien individuals who are residents of Canada would be
significant in furthering its compliance efforts. Consequently, §1.6049-8(a) requires the reporting of such interest on a Form 1042-S.
The proposed regulations extend the information reporting requirement for bank deposit interest paid to nonresident alien individuals who are residents of other foreign countries.
This extension is appropriate for two reasons. First, requiring routine reporting to the IRS of all bank deposit interest paid within the United States will help to ensure voluntary compliance by U.S. taxpayers by
minimizing the possibility of avoidance of the U.S. information reporting system (such as through false claims of foreign status). Second, several countries that have tax treaties or other agreements that provide
for the exchange of tax information with the United States have requested information concerning bank deposits of individual residents of their countries. Because of the importance that the United States attaches to
exchanging tax information as a way of encouraging voluntary compliance and furthering transparency, see e.g. S. Exec. Rep. No. 106-8, at 15 (1st Sess. 1999), Treasury and the IRS believe it is important for the
United States to facilitate, wherever possible, the effective exchange of all relevant tax information with our treaty partners.
In addition to extending the information reporting requirement for interest paid on deposits maintained at a bank's office within the United States to all nonresident alien
individuals, the proposed regulations also make the following minor changes and clarifications.
Section 1.6049-6 provides that a copy of Form 1042-S must be furnished to the recipient for interest paid on deposits maintained at a bank's office within the United States.
Paragraph (e)(4)(i) of that section has been revised to clarify that the payor or middleman can satisfy this requirement by furnishing a copy of Form 1042-S either in person or to the last known address of the
A new paragraph (e)(4)(ii) has been added to §1.6049-6 to provide guidance on the manner in which a Form 1042-S is furnished when there are joint account holders. Specifically, if
any joint account holder is a U.S. non-exempt recipient, the payor or middleman must report the entire payment to that person. If all joint account holders are foreign persons, the payor or middleman must report the
payment to the nonresident alien individual that is a resident of a country with which the United States has an income tax treaty or a tax information exchange agreement (TIEA). If more than one of the joint account
holders is a foreign person and is a resident of a country with which the United States has an income tax treaty or a TIEA, the payor or middleman must report the payment to the person that is the primary account
holder. The payor or middleman must, however, furnish a Form 1042-S to any account holder who requests it.
Section 1.6049-8(a) provides that interest paid with respect to a deposit maintained at an office within the United States to individuals who are Canadian residents must be
reported. The payor or middleman may rely on the permanent address found on Form W-8 to make the determination of whether the nonresident alien individual resides in Canada. However, the regulation also provides
that a payor or middleman may rely on its actual knowledge of the individual's residence address in Canada, even if a valid Form W-8 has not been provided, to make such a determination. This ''actual knowledge of
the individual's residence address'' rule has been eliminated because it creates a result that is contrary to the presumption rules contained in §1.1441-1(b)(3)(iii) (and made applicable to reportable payments by
§1.6049-5(d)(2)). Accordingly, §1.6049-8(a) has been clarified to provide that, while amounts described in §1.6049-8(a) generally are not subject to backup withholding under section 3406, the payor must report the
payment on a Form 1099 as made to a U.S. non-exempt recipient in accordance with the presumption rules of §§1.6049-5(d)(2) and 1.1441-1(b)(3)(iii) if the payor or middleman does not have either a valid Form W-8 or
valid Form W-9. Further, such payment is subject to backup withholding under section 3406.
Proposed Effective Date
These regulations are proposed to apply to payments made after December 31 of the year in which they are published as final regulations in the Federal Register.
It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not
required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and, because the regulations do not impose a collection of
information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) that are submitted
timely (in the manner described in the ''ADDRESSES'' portion of this preamble) to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and copying.
A public hearing has been scheduled for March 31, 2001,beginning at 10 a.m. in Room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building
security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access
list to attend the hearing, see the ''FOR FURTHER INFORMATION CONTACT'' portion of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments must submit written comments and an outline of the topics to be discussed and the
time to be devoted to each topic (a signed original and eight (8) copies) by February 27, 2001.A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for reviewing outlines has passed. Copies of the agenda will be available free of charge at the hearing.