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Efile 2012

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Efile 2012

Efile 2012 Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Efile 2012 S. Efile 2012 Taxpayer Identification NumbersUnexpected payment. Efile 2012 Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Efile 2012 Electronic reporting. Efile 2012 Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Efile 2012 S. Efile 2012 Real Property InterestForeign corporations. Efile 2012 Domestic corporations. Efile 2012 U. Efile 2012 S. Efile 2012 real property holding corporations. Efile 2012 Partnerships. Efile 2012 Trusts and estates. Efile 2012 Domestically controlled QIE. Efile 2012 Late filing of certifications or notices. Efile 2012 Certifications. Efile 2012 Liability of agent or qualified substitute. Efile 2012 Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Efile 2012 Withholding of Tax In most cases, a foreign person is subject to U. Efile 2012 S. Efile 2012 tax on its U. Efile 2012 S. Efile 2012 source income. Efile 2012 Most types of U. Efile 2012 S. Efile 2012 source income received by a foreign person are subject to U. Efile 2012 S. Efile 2012 tax of 30%. Efile 2012 A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Efile 2012 The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Efile 2012 The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Efile 2012 In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Efile 2012 S. Efile 2012 source income. Efile 2012 Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Efile 2012 NRA withholding does not include withholding under section 1445 of the Code (see U. Efile 2012 S. Efile 2012 Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Efile 2012 A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Efile 2012 However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Efile 2012 S. Efile 2012 person is not required to withhold. Efile 2012 In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Efile 2012 Withholding Agent You are a withholding agent if you are a U. Efile 2012 S. Efile 2012 or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Efile 2012 A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Efile 2012 S. Efile 2012 branch of certain foreign banks and insurance companies. Efile 2012 You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Efile 2012 Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Efile 2012 In most cases, the U. Efile 2012 S. Efile 2012 person who pays an amount subject to NRA withholding is the person responsible for withholding. Efile 2012 However, other persons may be required to withhold. Efile 2012 For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Efile 2012 In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Efile 2012 Liability for tax. Efile 2012   As a withholding agent, you are personally liable for any tax required to be withheld. Efile 2012 This liability is independent of the tax liability of the foreign person to whom the payment is made. Efile 2012 If you fail to withhold and the foreign payee fails to satisfy its U. Efile 2012 S. Efile 2012 tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Efile 2012   The applicable tax will be collected only once. Efile 2012 If the foreign person satisfies its U. Efile 2012 S. Efile 2012 tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Efile 2012 Determination of amount to withhold. Efile 2012   You must withhold on the gross amount subject to NRA withholding. Efile 2012 You cannot reduce the gross amount by any deductions. Efile 2012 However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Efile 2012   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Efile 2012 In no case, however, should you withhold more than 30% of the total amount paid. Efile 2012 Or, you may make a reasonable estimate of the amount from U. Efile 2012 S. Efile 2012 sources and put a corresponding part of the amount due in escrow until the amount from U. Efile 2012 S. Efile 2012 sources can be determined, at which time withholding becomes due. Efile 2012 When to withhold. Efile 2012   Withholding is required at the time you make a payment of an amount subject to withholding. Efile 2012 A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Efile 2012 A payment is considered made to a person if it is paid for that person's benefit. Efile 2012 For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Efile 2012 A payment also is considered made to a person if it is made to that person's agent. Efile 2012   A U. Efile 2012 S. Efile 2012 partnership should withhold when any distributions that include amounts subject to withholding are made. Efile 2012 However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Efile 2012 S. Efile 2012 partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Efile 2012 If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Efile 2012 A U. Efile 2012 S. Efile 2012 trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Efile 2012 To the extent a U. Efile 2012 S. Efile 2012 trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Efile 2012 Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Efile 2012 (See Returns Required , later. Efile 2012 ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Efile 2012 Form 1099 reporting and backup withholding. Efile 2012    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Efile 2012 S. Efile 2012 person. Efile 2012 You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Efile 2012 S. Efile 2012 person that is subject to Form 1099 reporting if any of the following apply. Efile 2012 The U. Efile 2012 S. Efile 2012 person has not provided its taxpayer identification number (TIN) in the manner required. Efile 2012 The IRS notifies you that the TIN furnished by the payee is incorrect. Efile 2012 There has been a notified payee underreporting. Efile 2012 There has been a payee certification failure. Efile 2012 In most cases, a TIN must be provided by a U. Efile 2012 S. Efile 2012 non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Efile 2012 A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Efile 2012 You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Efile 2012 S. Efile 2012 person. Efile 2012 For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Efile 2012 S. Efile 2012 person subject to Form 1099 reporting. Efile 2012 See Identifying the Payee , later, for more information. Efile 2012 Also see Section S. Efile 2012 Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Efile 2012 Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Efile 2012 Wages paid to employees. Efile 2012   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Efile 2012 See Pay for Personal Services Performed , later. Efile 2012 Effectively connected income by partnerships. Efile 2012   A withholding agent that is a partnership (whether U. Efile 2012 S. Efile 2012 or foreign) is also responsible for withholding on its income effectively connected with a U. Efile 2012 S. Efile 2012 trade or business that is allocable to foreign partners. Efile 2012 See Partnership Withholding on Effectively Connected Income , later, for more information. Efile 2012 U. Efile 2012 S. Efile 2012 real property interest. Efile 2012   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Efile 2012 S. Efile 2012 real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Efile 2012 S. Efile 2012 real property interest to a shareholder, partner, or beneficiary that is a foreign person. Efile 2012 See U. Efile 2012 S. Efile 2012 Real Property Interest , later. Efile 2012 Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Efile 2012 It does not apply to payments made to U. Efile 2012 S. Efile 2012 persons. Efile 2012 Usually, you determine the payee's status as a U. Efile 2012 S. Efile 2012 or foreign person based on the documentation that person provides. Efile 2012 See Documentation , later. Efile 2012 However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Efile 2012 Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Efile 2012 However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Efile 2012 U. Efile 2012 S. Efile 2012 agent of foreign person. Efile 2012   If you make a payment to a U. Efile 2012 S. Efile 2012 person and you have actual knowledge that the U. Efile 2012 S. Efile 2012 person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Efile 2012 However, if the U. Efile 2012 S. Efile 2012 person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Efile 2012   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Efile 2012 S. Efile 2012 person and not as a payment to a foreign person. Efile 2012 You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Efile 2012 Disregarded entities. Efile 2012   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Efile 2012 The payee of a payment made to a disregarded entity is the owner of the entity. Efile 2012   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Efile 2012   If the owner is a U. Efile 2012 S. Efile 2012 person, you do not apply NRA withholding. Efile 2012 However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Efile 2012 You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Efile 2012 Flow-Through Entities The payees of payments (other than income effectively connected with a U. Efile 2012 S. Efile 2012 trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Efile 2012 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Efile 2012 Income that is, or is deemed to be, effectively connected with the conduct of a U. Efile 2012 S. Efile 2012 trade or business of a flow-through entity is treated as paid to the entity. Efile 2012 All of the following are flow-through entities. Efile 2012 A foreign partnership (other than a withholding foreign partnership). Efile 2012 A foreign simple or foreign grantor trust (other than a withholding foreign trust). Efile 2012 A fiscally transparent entity receiving income for which treaty benefits are claimed. Efile 2012 See Fiscally transparent entity , later. Efile 2012 In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Efile 2012 You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Efile 2012 You must determine whether the owners or beneficiaries of a flow-through entity are U. Efile 2012 S. Efile 2012 or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Efile 2012 You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Efile 2012 If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Efile 2012 See Documentation and Presumption Rules , later. Efile 2012 Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Efile 2012 Foreign partnerships. Efile 2012    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Efile 2012 If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Efile 2012 However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Efile 2012 If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Efile 2012 Example 1. Efile 2012 A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Efile 2012 S. Efile 2012 citizen. Efile 2012 You make a payment of U. Efile 2012 S. Efile 2012 source interest to the partnership. Efile 2012 It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Efile 2012 S. Efile 2012 citizen. Efile 2012 The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Efile 2012 You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Efile 2012 Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Efile 2012 Report the payment to the U. Efile 2012 S. Efile 2012 citizen on Form 1099-INT. Efile 2012 Example 2. Efile 2012 A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Efile 2012 The second partnership has two partners, both nonresident alien individuals. Efile 2012 You make a payment of U. Efile 2012 S. Efile 2012 source interest to the first partnership. Efile 2012 It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Efile 2012 In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Efile 2012 The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Efile 2012 Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Efile 2012 Example 3. Efile 2012 You make a payment of U. Efile 2012 S. Efile 2012 source dividends to a withholding foreign partnership. Efile 2012 The partnership has two partners, both foreign corporations. Efile 2012 You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Efile 2012 You must treat the partnership as the payee of the dividends. Efile 2012 Foreign simple and grantor trust. Efile 2012   A trust is foreign unless it meets both of the following tests. Efile 2012 A court within the United States is able to exercise primary supervision over the administration of the trust. Efile 2012 One or more U. Efile 2012 S. Efile 2012 persons have the authority to control all substantial decisions of the trust. Efile 2012   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Efile 2012 A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Efile 2012   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Efile 2012 The payees of a payment made to a foreign grantor trust are the owners of the trust. Efile 2012 However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Efile 2012 If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Efile 2012 Example. Efile 2012 A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Efile 2012 S. Efile 2012 citizen. Efile 2012 You make a payment of interest to the foreign trust. Efile 2012 It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Efile 2012 S. Efile 2012 citizen. Efile 2012 The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Efile 2012 You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Efile 2012 Report the payment to the nonresident aliens on Forms 1042-S. Efile 2012 Report the payment to the U. Efile 2012 S. Efile 2012 citizen on Form 1099-INT. Efile 2012 Fiscally transparent entity. Efile 2012   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Efile 2012 The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Efile 2012 ). Efile 2012 The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Efile 2012 An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Efile 2012 Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Efile 2012   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Efile 2012 Example. Efile 2012 Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Efile 2012 A has two interest holders, B and C. Efile 2012 B is a corporation organized under the laws of country Y. Efile 2012 C is a corporation organized under the laws of country Z. Efile 2012 Both countries Y and Z have an income tax treaty in force with the United States. Efile 2012 A receives royalty income from U. Efile 2012 S. Efile 2012 sources that is not effectively connected with the conduct of a trade or business in the United States. Efile 2012 For U. Efile 2012 S. Efile 2012 income tax purposes, A is treated as a partnership. Efile 2012 Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Efile 2012 The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Efile 2012 Accordingly, A is fiscally transparent in its jurisdiction, country X. Efile 2012 B and C are not fiscally transparent under the laws of their respective countries of incorporation. Efile 2012 Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Efile 2012 Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Efile 2012 S. Efile 2012 source royalty income for purposes of the U. Efile 2012 S. Efile 2012 -Y income tax treaty. Efile 2012 Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Efile 2012 Therefore, A is not treated as fiscally transparent under the laws of country Z. Efile 2012 Accordingly, C is not treated as deriving its share of the U. Efile 2012 S. Efile 2012 source royalty income for purposes of the U. Efile 2012 S. Efile 2012 -Z income tax treaty. Efile 2012 Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Efile 2012 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Efile 2012 You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Efile 2012 An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Efile 2012 A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Efile 2012 In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Efile 2012 You must determine whether the customers or account holders of a foreign intermediary are U. Efile 2012 S. Efile 2012 or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Efile 2012 You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Efile 2012 If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Efile 2012 See Documentation and Presumption Rules , later. Efile 2012 Nonqualified intermediary. Efile 2012   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Efile 2012 The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Efile 2012 Example. Efile 2012 You make a payment of interest to a foreign bank that is a nonqualified intermediary. Efile 2012 The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Efile 2012 S. Efile 2012 person for whom the bank is collecting the payments. Efile 2012 The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Efile 2012 The account holders are the payees of the interest payment. Efile 2012 You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Efile 2012 S. Efile 2012 person on Form 1099-INT. Efile 2012 Qualified intermediary. Efile 2012   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Efile 2012 S. Efile 2012 intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Efile 2012 You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Efile 2012 In this situation, the QI is required to withhold the tax. Efile 2012 You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Efile 2012   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Efile 2012 If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Efile 2012 S. Efile 2012 person. Efile 2012 Branches of financial institutions. Efile 2012   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Efile 2012 The countries with approved KYC rules are listed on IRS. Efile 2012 gov. Efile 2012 QI withholding agreement. Efile 2012   Foreign financial institutions and foreign branches of U. Efile 2012 S. Efile 2012 financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Efile 2012   A QI is entitled to certain simplified withholding and reporting rules. Efile 2012 In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Efile 2012   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Efile 2012 These forms, and the procedures required to obtain a QI withholding agreement are available at www. Efile 2012 irs. Efile 2012 gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Efile 2012 Documentation. Efile 2012   A QI is not required to forward documentation obtained from foreign account holders to the U. Efile 2012 S. Efile 2012 withholding agent from whom the QI receives a payment of U. Efile 2012 S. Efile 2012 source income. Efile 2012 The QI maintains such documentation at its location and provides the U. Efile 2012 S. Efile 2012 withholding agent with withholding rate pools. Efile 2012 A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Efile 2012   A QI is required to provide the U. Efile 2012 S. Efile 2012 withholding agent with information regarding U. Efile 2012 S. Efile 2012 persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Efile 2012   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Efile 2012 This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Efile 2012 Form 1042-S reporting. Efile 2012   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Efile 2012 Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Efile 2012 Collective refund procedures. Efile 2012   A QI may seek a refund on behalf of its direct account holders. Efile 2012 The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Efile 2012 U. Efile 2012 S. Efile 2012 branches of foreign banks and foreign insurance companies. Efile 2012   Special rules apply to a U. Efile 2012 S. Efile 2012 branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Efile 2012 If you agree to treat the branch as a U. Efile 2012 S. Efile 2012 person, you may treat the branch as a U. Efile 2012 S. Efile 2012 payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Efile 2012 S. Efile 2012 branch on which the agreement is evidenced. Efile 2012 If you treat the branch as a U. Efile 2012 S. Efile 2012 payee, you are not required to withhold. Efile 2012 Even though you agree to treat the branch as a U. Efile 2012 S. Efile 2012 person, you must report the payment on Form 1042-S. Efile 2012   A financial institution organized in a U. Efile 2012 S. Efile 2012 possession is treated as a U. Efile 2012 S. Efile 2012 branch. Efile 2012 The special rules discussed in this section apply to a possessions financial institution. Efile 2012   If you are paying a U. Efile 2012 S. Efile 2012 branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Efile 2012 S. Efile 2012 person for amounts subject to NRA withholding. Efile 2012 Consequently, amounts not subject to NRA withholding that are paid to a U. Efile 2012 S. Efile 2012 branch are not subject to Form 1099 reporting or backup withholding. Efile 2012   Alternatively, a U. Efile 2012 S. Efile 2012 branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Efile 2012 In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Efile 2012 See Nonqualified Intermediaries under  Documentation, later. Efile 2012   If the U. Efile 2012 S. Efile 2012 branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Efile 2012 Withholding foreign partnership and foreign trust. Efile 2012   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Efile 2012 A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Efile 2012   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Efile 2012 A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Efile 2012 You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Efile 2012 WP and WT withholding agreements. Efile 2012   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Efile 2012 Also see the following items. Efile 2012 Revenue Procedure 2004-21. Efile 2012 Revenue Procedure 2005-77. Efile 2012 Employer identification number (EIN). Efile 2012   A completed Form SS-4 must be submitted with the application for being a WP or WT. Efile 2012 The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Efile 2012 Documentation. Efile 2012   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Efile 2012 The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Efile 2012 The Form W-8IMY must contain the WP-EIN or WT-EIN. Efile 2012 Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Efile 2012 A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Efile 2012 S. Efile 2012 person. Efile 2012 It also includes a foreign branch of a U. Efile 2012 S. Efile 2012 financial institution if the foreign branch is a qualified intermediary. Efile 2012 In most cases, the U. Efile 2012 S. Efile 2012 branch of a foreign corporation or partnership is treated as a foreign person. Efile 2012 Nonresident alien. Efile 2012   A nonresident alien is an individual who is not a U. Efile 2012 S. Efile 2012 citizen or a resident alien. Efile 2012 A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Efile 2012 Married to U. Efile 2012 S. Efile 2012 citizen or resident alien. Efile 2012   Nonresident alien individuals married to U. Efile 2012 S. Efile 2012 citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Efile 2012 However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Efile 2012 Wages paid to these individuals are subject to graduated withholding. Efile 2012 See Wages Paid to Employees—Graduated Withholding . Efile 2012 Resident alien. Efile 2012   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Efile 2012 Green card test. Efile 2012 An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Efile 2012 This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Efile 2012 Substantial presence test. Efile 2012 An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Efile 2012 Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Efile 2012   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Efile 2012 This exception is for a limited period of time. Efile 2012   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Efile 2012 Note. Efile 2012   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Efile 2012 For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Efile 2012 Resident of a U. Efile 2012 S. Efile 2012 possession. Efile 2012   A bona fide resident of Puerto Rico, the U. Efile 2012 S. Efile 2012 Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Efile 2012 S. Efile 2012 citizen or a U. Efile 2012 S. Efile 2012 national is treated as a nonresident alien for the withholding rules explained here. Efile 2012 A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Efile 2012   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Efile 2012 S. Efile 2012 Possessions. Efile 2012 Foreign corporations. Efile 2012   A foreign corporation is one that does not fit the definition of a domestic corporation. Efile 2012 A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Efile 2012 Guam or Northern Mariana Islands corporations. Efile 2012   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Efile 2012 Note. Efile 2012   The provisions discussed below under U. Efile 2012 S. Efile 2012 Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Efile 2012 U. Efile 2012 S. Efile 2012 Virgin Islands and American Samoa corporations. Efile 2012   A corporation created or organized in, or under the laws of, the U. Efile 2012 S. Efile 2012 Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Efile 2012 S. Efile 2012 Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Efile 2012 S. Efile 2012 Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Efile 2012 Foreign private foundations. Efile 2012   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Efile 2012 Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Efile 2012 Other foreign organizations, associations, and charitable institutions. Efile 2012   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Efile 2012 In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Efile 2012   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Efile 2012   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Efile 2012 U. Efile 2012 S. Efile 2012 branches of foreign persons. Efile 2012   In most cases, a payment to a U. Efile 2012 S. Efile 2012 branch of a foreign person is a payment made to the foreign person. Efile 2012 However, you may treat payments to U. Efile 2012 S. Efile 2012 branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Efile 2012 S. Efile 2012 regulatory supervision as payments made to a U. Efile 2012 S. Efile 2012 person, if you and the U. Efile 2012 S. Efile 2012 branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Efile 2012 For this purpose, a financial institution organized under the laws of a U. Efile 2012 S. Efile 2012 possession is treated as a U. Efile 2012 S. Efile 2012 branch. Efile 2012 Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Efile 2012 The payee is a U. Efile 2012 S. Efile 2012 person. Efile 2012 The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Efile 2012 In most cases, you must get the documentation before you make the payment. Efile 2012 The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Efile 2012 See Standards of Knowledge , later. Efile 2012 If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Efile 2012 For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Efile 2012 The specific types of documentation are discussed in this section. Efile 2012 However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Efile 2012 As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Efile 2012 Section 1446 withholding. Efile 2012   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Efile 2012 In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Efile 2012 This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Efile 2012 Joint owners. Efile 2012    If you make a payment to joint owners, you need to get documentation from each owner. Efile 2012 Form W-9. Efile 2012   In most cases, you can treat the payee as a U. Efile 2012 S. Efile 2012 person if the payee gives you a Form W-9. Efile 2012 The Form W-9 can be used only by a U. Efile 2012 S. Efile 2012 person and must contain the payee's taxpayer identification number (TIN). Efile 2012 If there is more than one owner, you may treat the total amount as paid to a U. Efile 2012 S. Efile 2012 person if any one of the owners gives you a Form W-9. Efile 2012 See U. Efile 2012 S. Efile 2012 Taxpayer Identification Numbers , later. Efile 2012 U. Efile 2012 S. Efile 2012 persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Efile 2012 Form W-8. Efile 2012   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Efile 2012 Until further notice, you can rely upon Forms W-8 that contain a P. Efile 2012 O. Efile 2012 box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Efile 2012 S. Efile 2012 person and that a street address is available. Efile 2012 You may rely on Forms W-8 for which there is a U. Efile 2012 S. Efile 2012 mailing address provided you received the form prior to December 31, 2001. Efile 2012   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Efile 2012 You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Efile 2012 S. Efile 2012 possession. Efile 2012 Other documentation. Efile 2012   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Efile 2012 The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Efile 2012 These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Efile 2012 Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Efile 2012 Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Efile 2012   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Efile 2012   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Efile 2012 For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Efile 2012 Claiming treaty benefits. Efile 2012   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Efile 2012 S. Efile 2012 TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Efile 2012   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Efile 2012   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Efile 2012 See Fiscally transparent entity discussed earlier under Flow-Through Entities. Efile 2012   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Efile 2012 For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Efile 2012   The exemptions from, or reduced rates of, U. Efile 2012 S. Efile 2012 tax vary under each treaty. Efile 2012 You must check the provisions of the tax treaty that apply. Efile 2012 Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Efile 2012   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Efile 2012 You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Efile 2012 Exceptions to TIN requirement. Efile 2012   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Efile 2012 Income from marketable securities (discussed next). Efile 2012 Unexpected payments to an individual (discussed under U. Efile 2012 S. Efile 2012 Taxpayer Identification Numbers ). Efile 2012 Marketable securities. Efile 2012   A Form W-8BEN provided to claim treaty benefits does not need a U. Efile 2012 S. Efile 2012 TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Efile 2012 For this purpose, income from a marketable security consists of the following items. Efile 2012 Dividends and interest from stocks and debt obligations that are actively traded. Efile 2012 Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Efile 2012 Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Efile 2012 Income related to loans of any of the above securities. Efile 2012 Offshore accounts. Efile 2012   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Efile 2012   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Efile 2012 However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Efile 2012 An offshore account is an account maintained at an office or branch of a U. Efile 2012 S. Efile 2012 or foreign bank or other financial institution at any location outside the United States. Efile 2012   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Efile 2012 This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Efile 2012 In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Efile 2012 Documentary evidence. Efile 2012   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Efile 2012 To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Efile 2012 Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Efile 2012 Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Efile 2012 In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Efile 2012 Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Efile 2012   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Efile 2012 (See Effectively Connected Income , later. Efile 2012 )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Efile 2012   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Efile 2012 S. Efile 2012 trade or business is subject to withholding under section 1446. Efile 2012 If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Efile 2012    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Efile 2012 Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Efile 2012   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Efile 2012 S. Efile 2012 possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Efile 2012   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Efile 2012   See Foreign Governments and Certain Other Foreign Organizations , later. Efile 2012 Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Efile 2012 The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Efile 2012 The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Efile 2012 Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Efile 2012 S. Efile 2012 Branches for United States Tax Withholding. Efile 2012   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Efile 2012 S. Efile 2012 branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Efile 2012 S. Efile 2012 branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Efile 2012 S. Efile 2012 person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Efile 2012 For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Efile 2012 1446-5. Efile 2012 Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Efile 2012 A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Efile 2012 The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Efile 2012 The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Efile 2012 Responsibilities. Efile 2012   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Efile 2012 However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Efile 2012 Instead, it provides you with a withholding statement that contains withholding rate pool information. Efile 2012 A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Efile 2012 A qualified intermediary is required to provide you with information regarding U. Efile 2012 S. Efile 2012 persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Efile 2012 S. Efile 2012 person unless it has assumed Form 1099 reporting and backup withholding responsibility. Efile 2012 For the alternative procedure for providing rate pool information for U. Efile 2012 S. Efile 2012 non-exempt persons, see the Form W-8IMY instructions. Efile 2012   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Efile 2012   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Efile 2012 Primary responsibility not assumed. Efile 2012   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Efile 2012 Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Efile 2012 S. Efile 2012 person subject to Form 1099 reporting and/or backup withholding. Efile 2012 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Efile 2012 Primary NRA withholding responsibility assumed. Efile 2012   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Efile 2012 S. Efile 2012 person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Efile 2012 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Efile 2012 Primary NRA and Form 1099 responsibility assumed. Efile 2012   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Efile 2012 It is not necessary to associate the payment with withholding rate pools. Efile 2012 Example. Efile 2012 You make a payment of dividends to a QI. Efile 2012 It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Efile 2012 S. Efile 2012 individual who provides it with a Form W-9. Efile 2012 Each customer is entitled to 20% of the dividend payment. Efile 2012 The QI does not assume any primary withholding responsibility. Efile 2012 The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Efile 2012 S. Efile 2012 individual. Efile 2012 You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Efile 2012 The part of the payment allocable to the U. Efile 2012 S. Efile 2012 individual (20%) is reportable on Form 1099-DIV. Efile 2012 Smaller partnerships and trusts. Efile 2012   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Efile 2012 It is a foreign partnership or foreign simple or grantor trust. Efile 2012 It is a direct account holder of the QI. Efile 2012 It does not have any partner, beneficiary, or owner that is a U. Efile 2012 S. Efile 2012 person or a pass- through partner, beneficiary, or owner. Efile 2012   For information on these rules, see section 4A. Efile 2012 01 of the QI agreement. Efile 2012 This is found in Appendix 3 of Revenue Procedure 2003-64. Efile 2012 Also see Revenue Procedure 2004-21. Efile 2012 Related partnerships and trusts. Efile 2012    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Efile 2012 It is a foreign partnership or foreign simple or grantor trust. Efile 2012 It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Efile 2012 For information on these rules, see section 4A. Efile 2012 02 of the QI agreement. Efile 2012 This is found in Appendix 3 of Revenue Procedure 2003-64. Efile 2012 Also see Revenue Procedure 2005-77. Efile 2012 Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Efile 2012 S. Efile 2012 branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Efile 2012 S. Efile 2012 branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Efile 2012 The NQI, flow-through entity, or U. Efile 2012 S. Efile 2012 branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Efile 2012 A withholding statement must be updated to keep the information accurate prior to each payment. Efile 2012 Withholding statement. Efile 2012   In most cases, a withholding statement must contain the following information. Efile 2012 The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Efile 2012 The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Efile 2012 The status of the person for whom the documentation has been provided, such as whether the person is a U. Efile 2012 S. Efile 2012 exempt recipient (U. Efile 2012 S. Efile 2012 person exempt from Form 1099 reporting), U. Efile 2012 S. Efile 2012 non-exempt recipient (U. Efile 2012 S. Efile 2012 person subject to Form 1099 reporting), or a foreign person. Efile 2012 For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Efile 2012 S. Efile 2012 branch. Efile 2012 The type of recipient the person is, based on the recipient codes used on Form 1042-S. Efile 2012 Information allocating each payment, by income type, to each payee (including U. Efile 2012 S. Efile 2012 exempt and U. Efile 2012 S. Efile 2012 non-exempt recipients) for whom documentation has been provided. Efile 2012 The rate of withholding that applies to each foreign person to whom a payment is allocated. Efile 2012 A foreign payee's country of residence. Efile 2012 If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Efile 2012 ). Efile 2012 In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Efile 2012 The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Efile 2012 S. Efile 2012 branch from which the payee will directly receive a payment. Efile 2012 Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Efile 2012 Alternative procedure. Efile 2012   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Efile 2012 S. Efile 2012 exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Efile 2012 To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Efile 2012 You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Efile 2012    This alternative procedure cannot be used for payments to U. Efile 2012 S. Efile 2012 non-exempt recipients. Efile 2012 Therefore, an NQI must always provide you with allocation information for all U. Efile 2012 S. Efile 2012 non-exempt recipients prior to a payment being made. Efile 2012 Pooled withholding information. Efile 2012   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Efile 2012 A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Efile 2012 For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Efile 2012 The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Efile 2012 Failure to provide allocation information. Efile 2012   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Efile 2012 You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Efile 2012 An NQI is deemed to have f
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Efile 2012 Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. Efile 2012 Proc. Efile 2012 2009-37 Table of Contents SECTION 1. Efile 2012 PURPOSE SECTION 2. Efile 2012 BACKGROUND SECTION 3. Efile 2012 SCOPE SECTION 4. Efile 2012 ELECTION PROCEDURES SECTION 5. Efile 2012 REQUIRED INFORMATION STATEMENT SECTION 6. Efile 2012 EFFECTIVE DATE SECTION 7. Efile 2012 TRANSITION RULE SECTION 8. Efile 2012 PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. Efile 2012 PURPOSE . Efile 2012 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. Efile 2012 . Efile 2012 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. Efile 2012 This revenue procedure describes the time and manner of providing this additional information. Efile 2012 . Efile 2012 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. Efile 2012 Taxpayers should be aware that these regulations may be retroactive. Efile 2012 See § 7805(b)(2). Efile 2012 This revenue procedure may be modified to provide procedures consistent with additional guidance. Efile 2012 SECTION 2. Efile 2012 BACKGROUND . Efile 2012 01 Section 108(i), Generally. Efile 2012 Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. Efile 2012 L. Efile 2012 No. Efile 2012 111-5, 123 Stat. Efile 2012 338. Efile 2012 In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. Efile 2012 Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). Efile 2012 The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. Efile 2012 1273-1(d) of the Income Tax Regulations. Efile 2012 The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. Efile 2012 For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). Efile 2012 A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). Efile 2012 See § 108(i)(5)(D). Efile 2012 The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. Efile 2012 Section 108(i)(5)(D)(ii). Efile 2012 For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. Efile 2012 . Efile 2012 02 Applicable Debt Instrument. Efile 2012 Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. Efile 2012 The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). Efile 2012 Section 108(i)(3)(B). Efile 2012 For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. Efile 2012 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. Efile 2012 1502-13(g)(5). Efile 2012 . Efile 2012 03 Reacquisition. Efile 2012 Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). Efile 2012 The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. Efile 2012 See § 108(i)(4)(B). Efile 2012 The term “acquisition” also includes an indirect acquisition within the meaning of § 1. Efile 2012 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). Efile 2012 For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. Efile 2012 . Efile 2012 04 General Requirements for the Section 108(i) Election. Efile 2012 Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. Efile 2012 (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. Efile 2012 ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. Efile 2012 Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. Efile 2012 . Efile 2012 05 Section 108(i) Elections Made by Pass-through Entities. Efile 2012 In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. Efile 2012 Section 108(i)(5)(B)(iii). Efile 2012 . Efile 2012 06 Additional Information on Subsequent Years’ Returns. Efile 2012 Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. Efile 2012 . Efile 2012 07 Exclusivity. Efile 2012 Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). Efile 2012 . Efile 2012 08 Allocation of Deferred COD Income on Partnership Indebtedness. Efile 2012 Section 4. Efile 2012 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. Efile 2012 If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Efile 2012 704-1(b)(2)(iii). Efile 2012 Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). Efile 2012 The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). Efile 2012 The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). Efile 2012 . Efile 2012 09 Partner’s Deferred § 752 Amount. Efile 2012 A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). Efile 2012 A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). Efile 2012 To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. Efile 2012 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). Efile 2012 See Rev. Efile 2012 Rul. Efile 2012 92-97, 1992-2 C. Efile 2012 B. Efile 2012 124, and Rev. Efile 2012 Rul. Efile 2012 94-4, 1994-1 C. Efile 2012 B. Efile 2012 195. Efile 2012 A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). Efile 2012 . Efile 2012 10 Allocation of Deferred COD Income on S Corporation Indebtedness. Efile 2012 For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. Efile 2012 . Efile 2012 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. Efile 2012 (1) In general. Efile 2012 The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). Efile 2012 These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. Efile 2012 OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). Efile 2012 COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. Efile 2012 See § 1. Efile 2012 56(g)-1(c)(1). Efile 2012 (2) Exceptions for certain special status corporations. Efile 2012 The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. Efile 2012 OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. Efile 2012 . Efile 2012 12 Extension of Time to Make Election. Efile 2012 Under § 301. Efile 2012 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. Efile 2012 An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. Efile 2012 Section 301. Efile 2012 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. Efile 2012 SECTION 3. Efile 2012 SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). Efile 2012 SECTION 4. Efile 2012 ELECTION PROCEDURES . Efile 2012 01 In General. Efile 2012 (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. Efile 2012 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. Efile 2012 07, 4. Efile 2012 08, 4. Efile 2012 09, or 4. Efile 2012 10 of this revenue procedure. Efile 2012 (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. Efile 2012 01(1)(a) of this revenue procedure for making the § 108(i) election. Efile 2012 The rules that apply to an automatic extension under § 301. Efile 2012 9100-2(a) apply to this automatic extension. Efile 2012 . Efile 2012 02 Section 108(i) Elections Made by Members of Consolidated Groups. Efile 2012 The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. Efile 2012 See § 1. Efile 2012 1502-77(a). Efile 2012 . Efile 2012 03 Aggregation Rule. Efile 2012 A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. Efile 2012 A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. Efile 2012 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. Efile 2012 . Efile 2012 04 Partial Elections. Efile 2012 (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. Efile 2012 Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. Efile 2012 The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. Efile 2012 (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). Efile 2012 Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. Efile 2012 (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Efile 2012 Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). Efile 2012 A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. Efile 2012 The provisions of this section 4. Efile 2012 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. Efile 2012 . Efile 2012 05 Contents of Election Statement. Efile 2012 A statement meets the requirements of this section 4. Efile 2012 05 if the statement— (1) Label. Efile 2012 States “Section 108(i) Election” across the top. Efile 2012 (2) Required information. Efile 2012 Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. Efile 2012 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. Efile 2012 . Efile 2012 06 Supplemental information. Efile 2012 The statement described in section 4. Efile 2012 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. Efile 2012 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. Efile 2012 05(2)(d) of this revenue procedure. Efile 2012 This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. Efile 2012 If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. Efile 2012 If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. Efile 2012 In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. Efile 2012 08, 2. Efile 2012 10 and, if applicable, 4. Efile 2012 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. Efile 2012 . Efile 2012 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. Efile 2012 The rules of this section 4. Efile 2012 07 apply to partnerships other than partnerships described in section 4. Efile 2012 10 of this revenue procedure. Efile 2012 (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). Efile 2012 For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. Efile 2012 , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Efile 2012 Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). Efile 2012 (2) Election information statement provided to partners. Efile 2012 The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. Efile 2012 07(2). Efile 2012 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Efile 2012 A statement meets the requirements of this section 4. Efile 2012 07(2) if the statement— (a) Label. Efile 2012 States “Section 108(i) Election Information Statement for Partners” across the top. Efile 2012 (b) Required information. Efile 2012 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. Efile 2012 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. Efile 2012 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. Efile 2012 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. Efile 2012 (c) If a partner fails to provide the written statement required by section 4. Efile 2012 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. Efile 2012 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. Efile 2012 (3) Partner reporting requirements. Efile 2012 The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. Efile 2012 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. Efile 2012 Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. Efile 2012 A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. Efile 2012 If a partner provides its written statement under this section 4. Efile 2012 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. Efile 2012 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. Efile 2012 . Efile 2012 08 Additional Requirements for an S Corporation Making a § 108(i) Election. Efile 2012 (1) Information filing on Schedule K-1 (Form 1120S). Efile 2012 For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. Efile 2012 , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Efile 2012 S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. Efile 2012 (2) Election information statement provided to shareholders. Efile 2012 The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. Efile 2012 08(2). Efile 2012 The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Efile 2012 A statement meets the requirements of this section 4. Efile 2012 08(2) if the statement— (a) Label. Efile 2012 States “Section 108(i) Election Information Statement for Shareholders” across the top. Efile 2012 (b) Required information. Efile 2012 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. Efile 2012 06 of this revenue procedure. Efile 2012 . Efile 2012 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. Efile 2012 The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. Efile 2012 964-1(c)(3). Efile 2012 Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. Efile 2012 05 of this revenue procedure and, if applicable, section 4. Efile 2012 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. Efile 2012 . Efile 2012 10 Section 108(i) Elections Made By Certain Foreign Partnerships. Efile 2012 The rules of this section 4. Efile 2012 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). Efile 2012 See § 1. Efile 2012 6031(a)-1(b). Efile 2012 (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. Efile 2012 05 of this revenue procedure and, if applicable, section 4. Efile 2012 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. Efile 2012 6031(a)-1(b)(5) it files with the Service. Efile 2012 In addition, a nonfiling foreign partnership must include in the information required in section 4. Efile 2012 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. Efile 2012 S. Efile 2012 persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). Efile 2012 (2) The nonfiling foreign partnership must make the election, in accordance with § 1. Efile 2012 6031(a)-1(b)(5), by the date provided in section 4. Efile 2012 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. Efile 2012 (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. Efile 2012 07(1) of this revenue procedure. Efile 2012 Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Efile 2012 The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. Efile 2012 07(2) of this revenue procedure by the date provided in section 4. Efile 2012 01(1)(a) of this revenue procedure. Efile 2012 The partnership should not attach any statement described in section 4. Efile 2012 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. Efile 2012 However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. Efile 2012 (4) The partnership and each affected partner must satisfy the requirements of section 4. Efile 2012 07(3) of this revenue procedure. Efile 2012 . Efile 2012 11 Protective § 108(i) Election. Efile 2012 (1) In general. Efile 2012 A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. Efile 2012 If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). Efile 2012 Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. Efile 2012 A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. Efile 2012 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. Efile 2012 01(1)(a) of this revenue procedure. Efile 2012 The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. Efile 2012 A statement meets the requirements of this section 4. Efile 2012 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. Efile 2012 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. Efile 2012 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. Efile 2012 06 of this revenue procedure. Efile 2012 (2) Statements provided to shareholders and partners. Efile 2012 (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. Efile 2012 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. Efile 2012 11(1)(d) of this revenue procedure. Efile 2012 (b) The partnership or S corporation should not attach the statements described in this section 4. Efile 2012 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Efile 2012 . Efile 2012 12 Election-Year Reporting by Tiered Pass-Through Entities. Efile 2012 (1) A partnership required to file a U. Efile 2012 S. Efile 2012 partnership return other than under § 1. Efile 2012 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. Efile 2012 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Efile 2012 07(1)(a) through (d) of this revenue procedure). Efile 2012 (2) If a partnership described in section 4. Efile 2012 12(1) of this revenue procedure receives a statement described in sections 4. Efile 2012 07(2) or 4. Efile 2012 10(3) of this revenue procedure or this section 4. Efile 2012 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. Efile 2012 07(2)(b)(x) of this revenue procedure. Efile 2012 If an S corporation receives a statement described in sections 4. Efile 2012 07(2) or 4. Efile 2012 10(3) of this revenue procedure or this section 4. Efile 2012 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. Efile 2012 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. Efile 2012 The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Efile 2012 The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Efile 2012 (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Efile 2012 704-1(b)(2)(iii). Efile 2012 The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Efile 2012 No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. Efile 2012 The partnership allocates amounts described in section 4. Efile 2012 06 of this revenue procedure under this section 4. Efile 2012 12(3) as if the additional COD income was realized. Efile 2012 (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. Efile 2012 No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. Efile 2012 (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. Efile 2012 (6) This paragraph 4. Efile 2012 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. Efile 2012 S. Efile 2012 Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. Efile 2012 07(1) of this revenue procedure, or a statement described in sections 4. Efile 2012 07(2) or 4. Efile 2012 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Efile 2012 (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Efile 2012 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. Efile 2012 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Efile 2012 (b) A Category 2 filer must include its share of the information described in section 4. Efile 2012 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Efile 2012 Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Efile 2012 (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. Efile 2012 12(6)(a)(ii) and 4. Efile 2012 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Efile 2012 However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Efile 2012 (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. Efile 2012 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. Efile 2012 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. Efile 2012 12(1) and (2) of this revenue procedure. Efile 2012 Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Efile 2012 12(6) of this revenue procedure. Efile 2012 (8) The provisions of section 4. Efile 2012 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. Efile 2012 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. Efile 2012 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. Efile 2012 11(1)(d) of this revenue procedure. Efile 2012 SECTION 5. Efile 2012 REQUIRED INFORMATION STATEMENT . Efile 2012 01 Annual Information Statements. Efile 2012 Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. Efile 2012 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. Efile 2012 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. Efile 2012 . Efile 2012 02 Contents of Statement. Efile 2012 A statement meets the requirements of this section 5. Efile 2012 02 if the statement— (1) Label. Efile 2012 States “Section 108(i) Information Statement” across the top; (2) Required information. Efile 2012 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Efile 2012 (3) Election attached. Efile 2012 Includes a copy of the election statement described in section 4. Efile 2012 05 of this revenue procedure. Efile 2012 . Efile 2012 03 Additional Annual Reporting Requirements for Certain Partnerships. Efile 2012 The rules of this section 5. Efile 2012 03 apply to partnerships other than partnerships described in section 5. Efile 2012 05 of this revenue procedure. Efile 2012 (1) In general. Efile 2012 A partnership that makes an election under § 108(i) (except for a protective election under section 4. Efile 2012 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Efile 2012 01 of this revenue procedure. Efile 2012 In addition, for each taxable year in which a statement is required under section 5. Efile 2012 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. Efile 2012 07(1) of this revenue procedure. Efile 2012 (2) Annual information statements provided to partners. Efile 2012 The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. Efile 2012 01 of this revenue procedure, a statement meeting the requirements of this section 5. Efile 2012 03(2). Efile 2012 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Efile 2012 A statement meets the requirements of this section 5. Efile 2012 03(2) if the statement— (a) Label. Efile 2012 States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. Efile 2012 (b) Required information. Efile 2012 Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. Efile 2012 If a partner fails to provide the written statement required by section 4. Efile 2012 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. Efile 2012 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. Efile 2012 . Efile 2012 04 Additional Annual Reporting Requirements for an S Corporation. Efile 2012 (1) In general. Efile 2012 An S corporation that makes an election under § 108(i) (except for a protective election under section 4. Efile 2012 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Efile 2012 01 of this revenue procedure. Efile 2012 In addition, for each taxable year in which a statement is required under section 5. Efile 2012 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. Efile 2012 08(1) of this revenue procedure. Efile 2012 (2) Annual information statements provided to shareholders. Efile 2012 The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. Efile 2012 01 of this revenue procedure a statement meeting the requirements of this section 5. Efile 2012 04(2). Efile 2012 The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Efile 2012 A statement meets the requirements of this section 5. Efile 2012 04(2) if the statement— (a) Label. Efile 2012 States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. Efile 2012 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Efile 2012 . Efile 2012 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. Efile 2012 (1) The rules of this section 5. Efile 2012 05 apply to nonfiling foreign partnerships. Efile 2012 (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. Efile 2012 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. Efile 2012 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. Efile 2012 01 of this revenue procedure. Efile 2012 (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. Efile 2012 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. Efile 2012 (4) For each taxable year in which a statement is required under section 5. Efile 2012 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. Efile 2012 07(1) of this revenue procedure. Efile 2012 Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Efile 2012 The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. Efile 2012 6031(b)-1T(b). Efile 2012 The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. Efile 2012 05(2) of this revenue procedure. Efile 2012 (5) For each taxable year for which a statement is required under section 5. Efile 2012 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. Efile 2012 03(2) of this revenue procedure. Efile 2012 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. Efile 2012 . Efile 2012 06 Information Statements Made on Behalf of Certain Foreign Corporations. Efile 2012 Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. Efile 2012 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. Efile 2012 01 of this revenue procedure. Efile 2012 . Efile 2012 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. Efile 2012 (1) A partnership required to file a U. Efile 2012 S. Efile 2012 partnership return other than under § 1. Efile 2012 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. Efile 2012 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Efile 2012 07(1)(a) through (d) of this revenue procedure). Efile 2012 (2) If a partnership described in section 5. Efile 2012 07(1) of this revenue procedure receives a statement described in sections 5. Efile 2012 03(2) or 5. Efile 2012 05(5) of this revenue procedure or this section 5. Efile 2012 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. Efile 2012 If an S corporation receives a statement described in sections 5. Efile 2012 03(2) or 5. Efile 2012 05(5) of this revenue procedure or this section 5. Efile 2012 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. Efile 2012 03(2)(b)(i) through (viii) of this revenue procedure. Efile 2012 The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Efile 2012 The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Efile 2012 (3) This paragraph 5. Efile 2012 07(3) provides the rules for persons described in section 4. Efile 2012 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. Efile 2012 03(1) of this revenue procedure, or a statement described in sections 5. Efile 2012 03(2) or 5. Efile 2012 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Efile 2012 (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Efile 2012 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. Efile 2012 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Efile 2012 (b) A Category 2 filer must include its share of the information described in section 4. Efile 2012 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Efile 2012 Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Efile 2012 (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. Efile 2012 07(3)(a)(ii) and 5. Efile 2012 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Efile 2012 However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Efile 2012 (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. Efile 2012 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. Efile 2012 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. Efile 2012 07(1) and (2) of this revenue procedure. Efile 2012 Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Efile 2012 12(6) of this revenue procedure. Efile 2012 SECTION 6. Efile 2012 EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. Efile 2012 SECTION 7. Efile 2012 TRANSITION RULE . Efile 2012 01 Noncomplying Election. Efile 2012 Except as otherwise provided in this section 7. Efile 2012 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. Efile 2012 However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. Efile 2012 . Efile 2012 02 Modification of Election. Efile 2012 A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). Efile 2012 To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. Efile 2012 . Efile 2012 03 Notations. Efile 2012 A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. Efile 2012 A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. Efile 2012 See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. Efile 2012 SECTION 8. Efile 2012 PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. Efile 2012 S. Efile 2012 C. Efile 2012 3507) under control number 1545-2147. Efile 2012 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 OMB control number. Efile 2012 The collection of information in this revenue procedure is in sections 4, 5 and 7. Efile 2012 This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. Efile 2012 This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. Efile 2012 The collection of information is required to obtain a benefit. Efile 2012 The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. Efile 2012 The estimated total annual reporting burden is 300,000 hours. Efile 2012 The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. Efile 2012 The estimated number of respondents is 50,000. Efile 2012 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. Efile 2012 Generally, tax returns and return information are confidential, as required by § 6103. Efile 2012 DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. Efile 2012 Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). Efile 2012 For further information regarding this revenue procedure, contact Megan A. Efile 2012 Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. Efile 2012 Blanchard at (202) 622-3950 for questions involving OID, Ronald M. Efile 2012 Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). Efile 2012 Prev  Up  Next   Home   More Internal Revenue Bulletins