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Federal Register / Vol. 71, No.

49 / Tuesday, March 14, 2006 / Rules and Regulations 13003

agent for the group with respect to the Substitute Agent, one or more members of tax under sections 1441 and 1442 on
entire consolidated return year of the group may request the IRS to certain U.S. source income paid to
(including the portion of the year make a designation for taxable years for foreign persons and related
preceding the date on which the new which the due date (without extensions) requirements governing collection,
common parent became the common for filing returns is after March 14, 2006. deposit, refunds, and credits of
parent)) and the former Domestic Such request is deemed to be a request withheld amounts under sections 1461
Substitute Agent will no longer be the under § 1.1502–77(d)(3)(i). Members of through 1463. Additionally, this
agent for the group for any part of that the group shall use the procedures in document contains final regulations
year. section 10 of Rev. Proc. 2002–43 (2002– under sections 6049 and 6114. These
(B) Years preceding the year the new 2 C.B. 99) or a corresponding provision regulations affect persons making
common parent becomes the common of a successor revenue procedure for payments of U.S. source income to
parent. If after the Commissioner’s this purpose. (See § 601.601(d)(2)(ii) of foreign persons and foreign persons
designation of a Domestic Substitute this chapter.) claiming benefits under a U.S. income
Agent the group remains in existence (ii) Request that IRS replace a tax treaty.
with a new common parent, and such previously designated substitute agent. DATES: Effective date: These regulations
new common parent is a domestic If the IRS designates a Domestic are effective March 14, 2006. The
corporation (determined without regard Substitute Agent pursuant to this removal of § 1.1441–1(e)(4)(vii)(G) is
to section 7874, a section 953(d) paragraph (j), one or more members of effective as of January 1, 2001.
election, or section 269B), the the group may request that the IRS FOR FURTHER INFORMATION CONTACT:
Commissioner may designate the new replace the designated Domestic
common parent as the agent for the Ethan Atticks, (202) 622–3840 (not a toll
Substitute Agent with another member free number).
group for any of the group’s prior (or successor to another member). Such
taxable years (for which the due date SUPPLEMENTARY INFORMATION:
a request is deemed to be a request
(without extensions) for filing returns is pursuant to § 1.1502–77(d)(3)(ii). Paperwork Reduction Act
after March 14, 2006) in which the new Members of the group shall use the
common parent was a member of the The collections of information
procedures in section 11 of Rev. Proc.
group. For this purpose, the new contained in this final rule have been
2002–43 (2002–2 C.B. 99) or a
common parent is treated as having previously reviewed and approved by
corresponding provision of a successor
been a member of the group for any the Office of Management and Budget in
revenue procedure for this purpose. (See
taxable year it is primarily liable for the accordance with the Paperwork
§ 601.601(d)(2)(ii) of this chapter.)
group’s income tax liability. Reduction Act of 1995 (44 U.S.C.
(7) Effective Date. This paragraph (j)
(v) Replacement of Domestic 3507(d)) under control number 1545–
applies to taxable years for which the
Substitute Agent by the Commissioner. 1484.
due date (without extensions) for filing
The Commissioner may at any time, An agency may not conduct or
returns is after March 14, 2006. The
with or without a request from any sponsor, and a person is not required to
applicability of this paragraph (j)
member of the group, designate a respond to, a collection of information
expires on or before March 9, 2009.
replacement for a Domestic Substitute unless the collection of information
Agent (or a successor to such agent). Mark E. Matthews, displays a valid control number
(5) Deemed § 1.1502–77(d) Deputy Commissioner for Services and assigned by the Office of Management
designation—(i) Section 1.1502–78 Enforcement. and Budget.
adjustments. If the Commissioner Approved: March 9, 2006. Books or records relating to a
designates a Domestic Substitute Agent Eric Solomon, collection of information must be
under this paragraph (j), it will be Acting Deputy Assistant Secretary of the retained as long as their contents may
treated as a designation of a substitute Treasury (Tax Policy). become material in the administration
agent under § 1.1502–77(d) for the [FR Doc. 06–2438 Filed 3–9–06; 4:15 pm] of any internal revenue law. Generally,
purposes of § 1.1502–78. BILLING CODE 4830–01–P
tax returns and tax return information
(ii) Default Substitute Agent. If the are confidential, as required by 26
Domestic Substitute Agent goes out of U.S.C. 6103.
existence and has a single successor that DEPARTMENT OF THE TREASURY
is eligible to be a Domestic Substitute Background
Agent, such successor becomes the Internal Revenue Service In Treasury Decision 8734 (1997–2
Domestic Substitute Agent and is C.B. 109 [62 FR 53387]), the Treasury
treated as a default substitute agent 26 CFR Parts 1 and 301 Department and the IRS issued
under § 1.1502–77(d)(2). See § 1.1502– comprehensive regulations under
[TD 9253]
77(d)(4) regarding the consequences of chapter 3 (sections 1441–1464) and
the successor’s failure to notify the RIN 1545–AY92 subpart B of Part III of Subchapter A of
Commissioner of its status as a default chapter 61 (sections 6041 through
substitute agent. The default substitute Revisions to Regulations Relating to 6050T) of the Internal Revenue Code
agent shall use procedures in section 9 Withholding of Tax on Certain U.S. (Code). Those regulations were
of Rev. Proc. 2002–43 (2002–2 C.B. 99) Source Income Paid to Foreign amended by TD 8804 (1999–1 C.B. 793
or a corresponding provision of a Persons and Revisions of Information [63 FR 72183]), TD 8856 (2000–1 C.B.
successor revenue procedure for Reporting Regulations 298 [64 FR 73408]), TD 8881 (2000–1
notification. (See § 601.601(d)(2)(ii) of AGENCY: Internal Revenue Service (IRS), C.B. 1158 [65 FR 32152]), and TD 9023
this chapter.) Treasury. (2002–2 C.B. 955 [67 FR 70310])
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(6) Request that IRS designate a ACTION: Final regulations and removal of (collectively the current regulations).
Domestic Substitute Agent—(i) Original temporary regulations. The current regulations are generally
designation. If the common parent of the effective as of January 1, 2001.
group is a Foreign Common Parent, and SUMMARY: This document contains final In Notice 2001–4 (2001–1 C.B. 267),
the IRS has not designated a Domestic regulations relating to the withholding Notice 2001–11 (2001–1 C.B. 464), and

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13004 Federal Register / Vol. 71, No. 49 / Tuesday, March 14, 2006 / Rules and Regulations

Notice 2001–43 (2001–2 C.B. 72), the administrative reasons the effective commentators concluded that the
Treasury Department and the IRS dates should be consistent whether or administrative burden placed on these
announced the intention to amend the not the withholding certificate is entities by the regulations is not
current regulations under sections 1441, provided to a QI or other withholding appropriate when considering the
6049 and 6114 to address the matters agent. The IRS and Treasury agree with benefit to the government by the
discussed in those notices. this comment. Accordingly, under these disclosure. As a result, the
On March 30, 2005, the IRS and final regulations, a withholding commentators believed that the
Treasury published a notice of proposed certificate executed on or after January exception should be modified.
rulemaking (REG–125443–01, 2005–16 1, 2001, and provided to a QI or other In addition, the commentators
I.R.B. 912) in the Federal Register (70 withholding agent by a person suggested that reporting be waived for
FR 16189) (hereinafter the proposed representing to be a foreign grantor trust pension funds and certain other persons
regulations). The proposed regulations with five or fewer grantors does not required to report under § 301.6114–
contained provisions to implement need to state a TIN for such certificate 1(b)(4)(ii)(D), which requires reporting
certain changes announced in those to be valid. whenever a treaty imposes ‘‘any
notices and other changes. condition’’ in addition to a person’s
No public hearing regarding the B. Reporting of Treaty-Based Return residence in the treaty country for
proposed regulations was requested or Positions entitlement to treaty benefits. The
held. However, certain written Section 301.6114–1(a) provides that, commentators stated that because, for
comments were received. After if a taxpayer takes a return position that example, an income tax treaty may
consideration of the comments, the a tax treaty overrules or modifies any condition a pension fund’s entitlement
proposed regulations are adopted as provision of the Code and thereby to a reduced rate of taxation on
revised by this Treasury decision. effects a reduction of any tax at any dividends on the pension fund not
time, the taxpayer must disclose that being engaged in a trade or business,
Summary of Comments return position, either on a statement and because a pension fund rarely will
These final regulations finalize the attached to the return or on a return violate such a condition, from a
provisions of the proposed regulations filed for the purpose of making such practical standpoint the sole
with only two areas of modification. disclosure. When applicable, requirement for entitlement to treaty
The comments received and the § 301.6114–1(d) generally requires a benefits is the residence of the pension
modifications made in response to those taxpayer to attach Form 8833, Treaty fund. Therefore, the commentators
comments are described below. Based Return Position Disclosure Under suggested that requiring the pension
Section 6114 or 7701(b), to its U.S. fund to file an income tax return and
A. Taxpayer Identification Number
Federal income tax return. Section make a treaty based disclosure of its
(TIN) Requirement for Certain Foreign
301.6114–1(b) states that reporting is position imposes an unnecessary
Grantor Trusts
required unless it is expressly waived administrative burden. Accordingly, the
Section 1.1441–1(e)(4)(vii)(G) and provides a nonexclusive list of commentators believed that it was
provides that a TIN must be stated on particular positions for which reporting appropriate to interpret the regulations
a withholding certificate from a person is required. Section 301.6114–1(c) then such that the trade or business
representing to be a foreign grantor trust provides a list of specific exceptions requirement described above with
with 5 or fewer grantors. Generally, if no from the general reporting requirements respect to pension funds is not ‘‘any
TIN is provided, the withholding of § 301.6114–1(a) and (b). condition’’ described in § 301.6114–
certificate is considered invalid. See The proposed regulations provided 1(b)(4)(ii)(D). To clarify this point, the
§ 1.1441–1(e)(2)(ii). that reporting under § 301.6114– commentators requested that the final
The proposed regulations eliminated 1(b)(4)(ii) is required only for the regulations waive reporting for pension
this TIN requirement for withholding positions specifically described in funds.
certificates provided by such persons to paragraphs (b)(4)(ii)(A) and (B), or (C) or Commentators also requested that
qualified intermediaries (QIs), but (D) of that section. Further, the § 301.6114–1(c)(6), which waives
retained it for withholding certificates proposed regulations provided that reporting for amounts required to be
provided by such persons to other reporting under § 301.6114–1(b)(4)(ii)(D) reported under section 6038A on a Form
withholding agents if the certificate was is waived for taxpayers that are not 5472, ‘‘Information Return of a 25%
executed on or before December 31, individuals or States and that receive Foreign-Owned U.S. Corporation or a
2003. amounts of income subject to Foreign Corporation Engaged in a U.S.
Commentators requested that these withholding that do not exceed $10,000 Trade or Business (under sections
final regulations adopt the provisions of in the aggregate for the taxable year. See 6038A and 6038(c) of the Internal
the proposed regulations that remove Prop. Reg. § 301.6114–1(c)(1)(i), and (7). Revenue Code),’’ to the extent permitted
the TIN requirement but with an Commentators suggested that the under the form or accompanying
effective date that applies to certificates $10,000 threshold applicable to instructions, be activated by including
executed and provided to all taxpayers that are not individuals or such permission in the form or
withholding agents, not just QIs, on or States should be increased to $500,000, instructions.
after January 1, 2001, the effective date the threshold amount for reporting The IRS and Treasury considered the
of the current regulations. The under § 301.6114–1(b)(4)(ii)(C) comments discussed above, as well as
commentators state that the retroactive (addressing payments to a related the general bases for requiring reporting
effective date for withholding foreign person where benefits are under section 6114. The IRS and
certificates provided to the other claimed under a treaty that contains a Treasury agree that reporting under
withholding agents is consistent with limitation on benefits article). The section 6114 should not be required in
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the IRS and Treasury’s recognition that commentators noted that entities certain circumstances where the
the TIN requirement in the current typically have substantially higher payment is properly reported on Form
regulations is not serving to enhance levels of investment as compared to 1042–S, ‘‘Foreign Person’s U.S. Source
enforcement objectives. Further, the individuals and therefore a higher Income Subject to Withholding,’’ and
commentators state that for threshold is warranted. The the withholding agent is a U.S. person,

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Federal Register / Vol. 71, No. 49 / Tuesday, March 14, 2006 / Rules and Regulations 13005

or a foreign person that has entered into regulatory assessment is not required. It treated as a U.S. person in certain cases.
an agreement that provides for IRS has also been determined that section A payment to a U.S. branch of a foreign
audit. Thus, in response to the 553(b) of the Administrative Procedure person is a payment to a foreign person.
comments described above, the Act (5 U.S.C. chapter 5) does not apply However, a U.S. branch described in
following amendments are made to the to these regulations, and, because the this paragraph (b)(2)(iv)(A) and a
waiver provisions of § 301.6114–1(c). regulations do not impose a new withholding agent (including another
First, rather than activating the collection of information on small U.S. branch described in this paragraph
exception for amounts required to be entities, the Regulatory Flexibility Act (b)(2)(iv)(A)) may agree to treat the
reported under section 6038A on Form (5 U.S.C. chapter 6) does not apply. branch as a U.S. person for purposes of
5472, paragraph (c)(6) of the regulations Pursuant to section 7805(f) of the Code, withholding on specified payments to
is revised to replace this provision the proposed regulations preceding the U.S. branch. Notwithstanding the
regarding Form 5472 with a provision these regulations were submitted to the preceding sentence, a withholding agent
waiving reporting for amounts properly Chief Counsel for Advocacy of the Small making a payment to a U.S. branch
reported on Form 1042–S by a Business Administration for comment treated as a U.S. person under this
withholding agent that is a reporting on their impact on small business. paragraph (b)(2)(iv)(A) shall not treat the
corporation within the meaning of branch as a U.S. person for purposes of
section 6038A(a). Second, a new Drafting Information
reporting the payment made to the
paragraph (c)(7) is added to provide that The principal author of these branch. Therefore, a payment to such
reporting is waived for amounts proposed regulations is Ethan Atticks, U.S. branch shall be reported on Form
properly reported on Form 1042–S by a Office of Associate Chief Counsel 1042–S under § 1.1461–1(c). Further, a
withholding agent that is a U.S. (International). However, other U.S. branch that is treated as a U.S.
financial institution, a QI, or a personnel from the IRS and Treasury person under this paragraph
withholding foreign partnership (WP) or Department participated in their (b)(2)(iv)(A) shall not be treated as a
withholding foreign trust (WT) if the development. U.S. person for purposes of the
beneficial owner is a direct account
List of Subjects withholding certificate it may provide to
holder of the U.S. financial institution
a withholding agent. Therefore, the U.S.
or QI or a direct beneficiary or owner of 26 CFR Part 1 branch must furnish a U.S. branch
the WP or WT. Third, a new paragraph
Income taxes, Reporting and withholding certificate on Form W–8 as
(c)(8) is added which replaces the
recordkeeping requirements. provided in paragraph (e)(3)(v) of this
provision in the proposed regulations
section and not a Form W–9. An
(see Prop. Reg. § 301.6114–1(c)(7)) 26 CFR Part 301
agreement to treat a U.S. branch as a
waiving reporting for taxpayers that are Employment taxes, Estate taxes, U.S. person must be evidenced by a U.S.
not individuals or States and that Excise taxes, Gift taxes, Income taxes, branch withholding certificate described
receive amounts of income subject to Penalties, Reporting and recordkeeping in paragraph (e)(3)(v) of this section
withholding that do not exceed the requirements. furnished by the U.S. branch to the
$10,000 threshold. New paragraph (c)(8)
Adoption of Amendments to the withholding agent. A U.S. branch
contains a waiver for taxpayers that are
Regulations described in this paragraph (b)(2)(iv)(A)
not individuals or States that receive
is any U.S. branch of a foreign bank
amounts that have been properly
■ Accordingly, 26 CFR parts 1 and 301 subject to regulatory supervision by the
reported on Form 1042–S, do not exceed
are amended as follows: Federal Reserve Board or a U.S. branch
$500,000, and are not received through
of a foreign insurance company required
an intermediary or flow-through entity. PART 1—INCOME TAXES
Notwithstanding the discussion to file an annual statement on a form
above, the final regulations provide that ■ Paragraph 1. The authority citation approved by the National Association of
the waivers from reporting in paragraph for part 1 continues to read, in part, as Insurance Commissioners with the
(c)(6), (7) and (8) do not apply to the follows: Insurance Department of a State, a
extent that reporting is specifically Territory, or the District of Columbia. In
Authority: 26 U.S.C. 7805 * * * addition, a financial institution
required under the instructions to Form
8833. ■ Par. 2. Section 1.1441–1 is amended organized in a possession of the United
Finally, these final regulations clarify as follows: States will be treated as a U.S. branch
that reporting under section 301.6114– ■ 1. Paragraph (b)(2)(iv)(A) is revised. for purposes of this paragraph
1(b)(4)(ii) is required only for the ■ 2. Paragraph (b)(3)(iii)(E) is added. (b)(2)(iv)(A). The Internal Revenue
positions specifically described in ■ 3. Paragraph (c)(30) is added. Service (IRS) may approve a list of U.S.
paragraphs (b)(4)(ii)(A) and (B), or (C) or ■ 4. Paragraph (e)(4)(vii)(G) is removed branches that may qualify for treatment
(D). and paragraph (e)(4)(vii)(H) and (I) are as a U.S. person under this paragraph
redesignated as paragraph (e)(4)(vii)(G) (b)(2)(iv)(A) (see § 601.601(d)(2) of this
Effect on Other Documents chapter). See § 1.6049–5(c)(5)(vi) for the
and (H) respectively.
Sections (V)(C), (D), and (E) of Notice The revisions and additions read as treatment of U.S. branches as U.S.
2001–4 (2001–1 C.B. 267), Notice 2001– follows: payors if they make a payment that is
11 (2001–1 C.B. 464), and Sections 2 subject to reporting under chapter 61 of
and 3 of Notice 2001–43 (2001–2 C.B. § 1.1441–1 Requirement for the deduction the Internal Revenue Code. Also see
72), are superseded as of March 14, and withholding of tax on payments to § 1.6049–5(d)(1)(ii) for the treatment of
2006. foreign persons. U.S. branches as foreign payees under
* * * * * chapter 61 of the Internal Revenue
Special Analyses
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(b) * * * Code.
It has been determined that this (2) * * * * * * * *
Treasury decision is not a significant (iv) Payments to a U.S. branch of
regulatory action as defined in certain foreign banks or foreign (3) * * *
Executive Order 12866. Therefore, a insurance companies—(A) U.S. branch (iii) * * *

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(E) Certain payments for services. A section 852(b)(3)(C) or (5)(A), or 1443 on any payment to a foreign
payment for services is presumed to be 871(k)(1)(C) or (2)(C), a withholding person is eligible for reduction under
made to a foreign person if— agent that is not the distributing the terms of an income tax treaty only
(1) The payee is an individual; regulated investment company may, to the extent that such payment is
(2) The withholding agent does not absent actual knowledge or reason to treated as derived by a resident of an
know, or have reason to know, that the know otherwise, rely on the applicable treaty jurisdiction, such
payee is a U.S. citizen or resident; designations that the distributing resident is a beneficial owner, and all
(3) The withholding agent does not company represents have been made in other requirements for benefits under
know, or have reason to know, that the accordance with paragraph (c)(3)(i) of the treaty are satisfied. See section 894
income is (or may be) effectively this section. Failure by the withholding and the regulations thereunder to
connected with the conduct of a trade agent to withhold the required amount determine whether a resident of a treaty
or business within the United States; due to a failure by the regulated country derives the income. Absent
and investment company to reasonably actual knowledge or reason to know
(4) All of the services for which the estimate the required amounts or to otherwise, a withholding agent may rely
payment is made were performed by the properly communicate the relevant on a claim that a beneficial owner is
payee outside of the United States. information to the withholding agent entitled to a reduced rate of withholding
* * * * * shall be imputed to the distributing based upon an income tax treaty if, prior
(c) * * * company. In such a case, the IRS may to the payment, the withholding agent
(30) Possessions of the United States. collect from the distributing company can reliably associate the payment with
For purposes of the regulations under any underwithheld amount and subject a beneficial owner withholding
chapters 3 and 61 of the Internal the company to applicable interest and certificate, as described in § 1.1441–
Revenue Code, possessions of the penalties as a withholding agent. 1(e)(2), that contains the information
United States means Guam, American
* * * * * necessary to support the claim, or, in
Samoa, the Northern Mariana Islands,
(e) * * * the case of a payment of income
Puerto Rico, and the Virgin Islands.
(2) Payments in foreign currency. If described in paragraph (c)(2) of this
* * * * * the amount subject to withholding tax is section made outside the United States
Par. 3. Section 1.1441–3 is amended paid in a currency other than the U.S. with respect to an offshore account,
by revising paragraphs (c)(3) and (e)(2) dollar, the amount of withholding under documentary evidence described in
to read as follows: section 1441 shall be determined by paragraphs (c)(3), (4), and (5) of this
§ 1.1441–3 Determination of amounts to be applying the applicable rate of section. See § 1.6049–5(e) for the
withheld. withholding to the foreign currency definition of payments made outside the
* * * * * amount and converting the amount United States and § 1.6049–5(c)(1) for
(c) * * * withheld into U.S. dollars on the date of the definition of offshore account. For
(3) Special rules in the case of payment at the spot rate (as defined in purposes of this paragraph (b)(1), a
distributions from a regulated § 1.988–1(d)(1)) in effect on that date. A beneficial owner withholding certificate
investment company—(i) General rule. withholding agent making regular or described in § 1.1441–1(e)(2)(i) contains
If the amount of any distributions frequent payments in foreign currency information necessary to support the
designated as being subject to section may use a month-end spot rate or a claim for a treaty benefit only if it
852(b)(3)(C) or 5(A), or 871(k)(1)(C) or monthly average spot rate. In addition, includes the beneficial owner’s taxpayer
(2)(C), exceeds the amount that may be such a withholding agent may use the identifying number (except as otherwise
designated under those sections for the spot rate on the date the amount of tax provided in paragraph (c)(1) of this
taxable year, then no penalties will be is deposited (within the meaning of section and § 1.1441–6(g)) and the
asserted for any resulting § 1.6302–2(a)), provided that such representations that the beneficial
underwithholding if the designations deposit is made within seven days of owner derives the income under section
were based on a reasonable estimate the date of the payment giving rise to 894 and the regulations thereunder, if
(made pursuant to the same procedures the obligation to withhold. A spot rate required, and meets the limitation on
as described in paragraph (c)(2)(ii)(A) of convention must be used consistently benefits provisions of the treaty, if any.
this section) and the adjustments to the for all non-dollar amounts withheld and The withholding certificate must also
amount withheld are made within the from year to year. Such convention contain any other representations
time period described in paragraph cannot be changed without the consent required by this section and any other
(c)(2)(ii)(B) of this section. Any of the Commissioner. The U.S. dollar information, certifications, or statements
adjustment to the amount of tax due and amount so determined shall be treated as may be required by the form or
paid to the IRS by the withholding agent by the beneficial owner as the amount accompanying instructions in addition
as a result of underwithholding shall of tax paid on the income for purposes to, or in place of, the information and
not be treated as a distribution for of determining the final U.S. tax liability certifications described in this section.
purposes of section 562(c) and the and, if applicable, claiming a refund or Absent actual knowledge or reason to
regulations thereunder. Any amount of credit of tax. know that the claims are incorrect (and
U.S. tax that a foreign shareholder is * * * * * subject to the standards of knowledge in
treated as having paid on the ■ Par. 4. In § 1.1441–6, paragraph (b)(1) § 1.1441–7(b)), a withholding agent may
undistributed capital gain of a regulated is revised to read as follows: rely on the claims made on a
investment company under section withholding certificate or on
852(b)(3)(D) may be claimed by the § 1.1441–6 Claim of reduced withholding documentary evidence. A withholding
foreign shareholder as a credit or refund under an income tax treaty. agent may also rely on the information
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under § 1.1464–1. * * * * * contained in a withholding statement


(ii) Reliance by intermediary on (b) Reliance on claim of reduced provided under § 1.1441–1(e)(3)(iv) and
reasonable estimate. For purposes of withholding under an income tax 1.1441–5(c)(3)(iv) and (e)(5)(iv) to
determining whether a payment is a treaty—(1) In general. The withholding determine whether the appropriate
distribution designated as subject to imposed under section 1441, 1442, or statements regarding section 894 and

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limitation on benefits have been the District of Columbia) and outside of which the income is sourced if, prior to
provided in connection with possessions of the United States. Thus, payment of the income, the U.S. payor
documentary evidence. If the beneficial for example, an account maintained in can reliably associate the payment with
owner is related to the person obligated a foreign country at a branch of a U.S. valid documentation that supports the
to pay the income, within the meaning bank or of a foreign subsidiary of a U.S. claim of residence in the possession of
of section 267(b) or 707(b), the bank is an offshore account. For the United States from which the
withholding certificate must also purposes of this paragraph (c)(1), a U.S. income is sourced. This paragraph
contain a representation that the possessions account means an account (c)(5)(ii) shall not apply if the U.S. payor
beneficial owner will file the statement maintained at an office or branch of a has actual knowledge or reason to know
required under § 301.6114–1(d) of this U.S. or foreign bank or other financial that the documentation is unreliable or
chapter (if applicable). The requirement institution located within a possession incorrect or that the income does not
to file an information statement under of the United States. For the definition satisfy the requirements for exemption
section 6114 for income subject to of a payment made outside the United under section 931, 932, or 933. For the
withholding applies only to amounts States, see paragraph (e) of this section. rules determining whether income is
received during the taxpayer’s taxable A payor may rely on documentary from sources within a possession of the
year that, in the aggregate, exceed evidence if the payor has established United States, see section 937(b) and the
$500,000. See § 301.6114–1(d) of this procedures to obtain, review, and regulations thereunder.
chapter. The Internal Revenue Service maintain documentary evidence * * * * *
(IRS) may apply the provisions of sufficient to establish the identity of the
§ 1.1441–1(e)(1)(ii)(B) to notify the payee and the status of that person as a PART 301—-PROCEDURE AND
withholding agent that the certificate foreign person (including, but not ADMINISTRATION
cannot be relied upon to grant benefits limited to, documentary evidence
under an income tax treaty. See described in § 1.1441–6(c)(3) or (4)); and ■ Par. 6. The authority citation for part
§ 1.1441–1(e)(4)(viii) regarding reliance the payor obtains, reviews, and 301 continues to read, in part, as
on a withholding certificate by a maintains such documentary evidence follows:
withholding agent. The provisions of in accordance with those procedures. A Authority: 26 U.S.C. 7805 * * *
§ 1.1441–1(b)(3)(iv) dealing with a 90- payor maintains the documents ■ Par. 7. In § 301.6114–1 is amended as
day grace period shall apply for reviewed by retaining the original, follows:
purposes of this section. certified copy, or a photocopy (or ■ 1. Paragraphs (c)(1)(i) through
* * * * * microfiche or similar means of record (c)(1)(vii) are redesignated as paragraphs
■ Par. 5. Section 1.6049–5 is amended retention) of the documents reviewed (c)(1)(ii) through (c)(1)(viii),
as follows: and noting in its records the date on respectively.
■ 1. Paragraph (c)(1) is revised. which and by whom the document was ■ 2. New paragraph (c)(1)(i) is added.
■ 2. Paragraphs (c)(5)(i), (ii), (iii), (iv), received and reviewed. Documentary ■ 3. Paragraph (c)(6) is revised.
(v) and (vi) are redesignated as evidence furnished for the payment of ■ 4. Paragraphs (c)(7) and (8) are added.
paragraphs (c)(5)(i)(A), (B), (C), (D), (E), an amount subject to withholding under The additions and revision read as
and (F), respectively. chapter 3 of the Internal Revenue Code follows:
■ 3. A new heading is added to must contain all of the information that
paragraph (c)(5)(i). is necessary to complete a Form 1042- § 301.6114–1 Treaty-based return
■ 4. New paragraph (c)(5)(ii) is added. S for that payment. A payor may also positions.
The revisions and additions read as rely on documentary evidence * * * * *
follows: associated with a flow-through (c) * * * (1) * * *
§ 1.6049–5 Interest and original issue withholding certificate for payments (i) For amounts received on or after
discount subject to reporting after treated as made to foreign partners of a January 1, 2001, reporting under
December 31, 1982. nonwithholding foreign partnership, as paragraph (b)(4)(ii) is waived, unless
* * * * * defined in § 1.1441–1(c)(28), the foreign reporting is specifically required under
(c) Applicable rules—(1) beneficiaries of a foreign simple trust, as paragraphs (b)(4)(ii)(A) and (B) of this
Documentary evidence for offshore defined in § 1.1441–1(c)(24), or foreign section, paragraph (b)(4)(ii)(C) of this
accounts and for possessions accounts. owners of a foreign grantor trust, as section, or paragraph (b)(4)(ii)(D) of this
A payor may rely on documentary defined in § 1.1441–1(c)(26), even section;
evidence described in this paragraph though the partnership or trust account * * * * *
(c)(1) instead of a beneficial owner is maintained in the United States. (6)(i) For taxable years ending after
withholding certificate described in * * * * * December 31, 2004, except as provided
§ 1.1441–1(e)(2)(i) in the case of a (5) * * * (i) Definition. * * * in paragraph (c)(6)(ii) of this section,
payment made outside the United States (ii) Reporting by U.S. payors in U.S. reporting under paragraph (b)(4)(ii) of
to an offshore account, in the case of a possessions. U.S. payors are not this section is waived for amounts
payment made to a U.S. possessions required to report on Form 1099 income received by a related party, within the
account or, in the case of broker that is from sources within a possession meaning of section 6038A(c)(2), from a
proceeds described in § 1.6045–1(c)(2), of the United States and that is exempt withholding agent that is a reporting
in the case of a sale effected outside the from taxation under section 931, 932, or corporation, within the meaning of
United States (as defined in § 1.6045– 933, each of which sections exempts section 6038A(a), and that are properly
1(g)(3)(iii)(A)). For purposes of this certain income from sources within a reported on Form 1042–S.
paragraph (c)(1), an offshore account possession of the United States paid to (ii) Paragraph (c)(6)(i) of this section
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means an account maintained at an a bona fide resident of that possession. does not apply to any amounts for
office or branch of a U.S. or foreign bank For purposes of this paragraph (c)(5)(ii), which reporting is specifically required
or other financial institution at any a U.S. payor may treat the beneficial under the instructions to Form 8833.
location outside the United States (i.e., owner as a bona fide resident of the (7)(i) For taxable years ending after
other than in any of the fifty States or possession of the United States from December 31, 2004, except as provided

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13008 Federal Register / Vol. 71, No. 49 / Tuesday, March 14, 2006 / Rules and Regulations

in paragraph (c)(7)(iv) of this section, are not received through an account accordance with the Paperwork
reporting under paragraph (b)(4)(ii) of with an intermediary, as defined in Reduction Act of 1995 (44 U.S.C.
this section is waived for amounts § 1.1441–1(c) (13), or with respect to 3507(d)) under control number 1545–
properly reported on Form 1042–S (on interest in a flow-through entity, as 1828.
either a specific payee or pooled basis) defined in § 1.1441–1(c)(23), (ii) The The collection of information in these
by a withholding agent described in exception contained in paragraph regulations is in §§ 1.1502–35(c),
paragraph (c)(7)(ii) of this section if the (c)(8)(i) of this section does not apply to 1.1502–35(c)(5)(iii), and 1.1502–
beneficial owner is described in any amounts for which reporting is 35(g)(3). This information is required by
paragraph (c)(7)(iii) of this section. specifically required under the the IRS to verify compliance with
(ii) A withholding agent described in instructions to Form 8833. section 1502 of the Code. This
this paragraph (c)(7)(ii) is a U.S. * * * * * information will be used to determine
financial institution, as defined in whether the amount of tax has been
§ 1.1441–1(c)(5) of this chapter, a Mark E. Matthews, calculated correctly. The collection of
qualified intermediary, as defined in Deputy Commissioner for Services and information is required to properly
§ 1.1441–1(e)(5)(ii) of this chapter, a Enforcement. determine the amount permitted to be
withholding foreign partnership, as Approved: February 27, 2006. taken into account as a loss. The
defined § 1.1441–5(c)(2)(i) of this Eric Solomon, respondents are corporations filing
chapter, or a withholding foreign trust, Acting Deputy Assistant Secretary of the consolidated returns. The collection of
as defined in § 1.1441–5(e)(5)(v) of this Treasury (Tax Policy). information is required to obtain a
chapter. [FR Doc. 06–2443 Filed 3–13–06; 8:45 am] benefit.
(iii) A beneficial owner described in BILLING CODE 4830–01–P
Estimated average annual burden per
this paragraph (c)(7)(iii) of this section respondent and/or recordkeeper: 2
is a direct account holder of a U.S. hours.
financial institution or qualified DEPARTMENT OF THE TREASURY Comments concerning the accuracy of
intermediary, a direct partner of a this burden estimate and suggestions for
withholding foreign partnership, or a Internal Revenue Service reducing this burden should be directed
direct beneficiary or owner of a simple to the Office of Management and
or grantor trust that is a withholding 26 CFR Parts 1 and 602 Budget, Attn: Desk Officer for the
foreign trust. A beneficial owner Department of Treasury, Office of
[TD 9254]
described in this paragraph (c)(7)(iii) Information and Regulatory Affairs,
also includes an account holder to RIN 1545–BB25 Washington, DC 20503, with copies to
which a qualified intermediary has the Internal Revenue Service, Attn: IRS
applied section 4A.01 or 4A.02 of the Guidance Under Section 1502; Reports Clearance Officer,
qualified intermediary agreement, Suspension of Losses on Certain SE:W:CAR:MP:T:T:SP, Washington, DC
contained in Revenue Procedure 2000– Stock Dispositions 20224.
12 (2000–1 C.B. 387), (as amended by AGENCY: Internal Revenue Service (IRS), An agency may not conduct or
Revenue Procedure 2003–64, (2003–2 Treasury. sponsor, and a person is not required to
C.B. 306); Revenue Procedure 2004–21 respond to, a collection of information
ACTION: Final rule and removal of
(2004–1 C.B. 702); Revenue Procedure unless it displays a valid control
2005–77 (2005–51 I.R.B. 1176) (see temporary regulations.
number.
§ 601.601(b)(2) of this chapter) a partner SUMMARY: This document contains final Books or records relating to the
to which a withholding foreign regulations under section 1502 of the collection of information must be
partnership has applied section 10.01 or Internal Revenue Code of 1986. The retained as long as their contents may
10.02 of the withholding foreign regulations apply when a member of a become material in the administration
partnership agreement, and a consolidated group transfers subsidiary of any Internal Revenue law. Generally,
beneficiary or owner to which a stock at a loss. They also apply when a tax returns and tax return information
withholding foreign trust has applied member holds loss shares of subsidiary are confidential, as required by 26
section 10.01 or 10.02 of the stock and the subsidiary ceases to be a U.S.C. 6103.
withholding foreign trust agreement, member of the group. These regulations
contained in Revenue Procedure 2003– Background
finalize § 1.1502–35T without
64, (2003–2 C.B. 306), (as amended by On September 19, 1991, the IRS and
substantive change.
Revenue Procedure 2004–21 (2004–1 Treasury Department published
DATES: Effective Date: These regulations
C.B. 702); Revenue Procedure 2005–77 § 1.1502–20 (the loss disallowance rule,
are effective March 9, 2006. or LDR). See TD 8364, 56 FR 47379. The
(2005–51 I.R.B. 1176); (see
Applicability Date: For dates of LDR addressed two problems arising in
§ 601.601(b)(2) of this chapter).
(iv) Paragraph (c)(7)(i) of this section applicability, see §§ 1.1502–21(h)(8), the consolidated return context: the
does not apply to any amounts for 1.1502–32(h)(6), 1.1502–35(f), and circumvention of General Utilities
which reporting is specifically required 1.1502–35(j). repeal and the duplication of loss.
under the instructions to Form 8833. FOR FURTHER INFORMATION CONTACT: On July 6, 2001, in Rite Aid Corp. v.
(8)(i) For taxable years ending after Theresa Abell (202) 622–7700 or Martin United States, 255 F.3d 1357 (Fed. Cir.
December 31, 2004, except as provided Huck (202) 622–7750 (not toll-free 2001), the Court of Appeals for the
in paragraph (c)(8)(ii) of this section, numbers). Federal Circuit held that the duplicated
reporting under paragraph (b)(4)(ii) of SUPPLEMENTARY INFORMATION: loss provisions of the LDR were an
this section is waived for taxpayers that invalid exercise of regulatory authority.
Paperwork Reduction Act
sroberts on PROD1PC70 with RULES

are not individuals or States and that In response to the court’s decision, the
receive amounts of income that have The collection of information IRS and Treasury Department
been properly reported on Form 1042– contained in these final regulations has promulgated two regulations to replace
S, that do not exceed $500,000 in the been reviewed and approved by the the LDR. The first, § 1.337(d)–2T
aggregate for the taxable year and that Office of Management and Budget in (temporary General Utilities regulation),

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