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Instructions

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Instructions

Instructions 9. Instructions   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Instructions Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Instructions Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Instructions Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Instructions It also covers the following topics. Instructions Personal use of dwelling unit (including vacation home). Instructions Depreciation. Instructions Limits on rental losses. Instructions How to report your rental income and expenses. Instructions If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Instructions If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Instructions If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Instructions See Publication 527, Residential Rental Property, for more information. Instructions Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Instructions Rental income is any payment you receive for the use or occupation of property. Instructions In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Instructions When to report. Instructions   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Instructions You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Instructions You constructively receive income when it is made available to you, for example, by being credited to your bank account. Instructions   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Instructions Advance rent. Instructions   Advance rent is any amount you receive before the period that it covers. Instructions Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Instructions Example. Instructions You sign a 10-year lease to rent your property. Instructions In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Instructions You must include $10,000 in your income in the first year. Instructions Canceling a lease. Instructions   If your tenant pays you to cancel a lease, the amount you receive is rent. Instructions Include the payment in your income in the year you receive it regardless of your method of accounting. Instructions Expenses paid by tenant. Instructions   If your tenant pays any of your expenses, the payments are rental income. Instructions Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Instructions See Rental Expenses , later, for more information. Instructions Property or services. Instructions   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Instructions   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Instructions Security deposits. Instructions   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Instructions But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Instructions   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Instructions Include it in your income when you receive it. Instructions Part interest. Instructions   If you own a part interest in rental property, you must report your part of the rental income from the property. Instructions Rental of property also used as your home. Instructions   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Instructions However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Instructions See Personal Use of Dwelling Unit (Including Vacation Home) , later. Instructions Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Instructions It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Instructions Depreciation , which you can also deduct from your rental income, is discussed later. Instructions Personal use of rental property. Instructions   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Instructions Also, your rental expense deductions may be limited. Instructions See Personal Use of Dwelling Unit (Including Vacation Home) , later. Instructions Part interest. Instructions   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Instructions When to deduct. Instructions   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Instructions Depreciation. Instructions   You can begin to depreciate rental property when it is ready and available for rent. Instructions See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Instructions Pre-rental expenses. Instructions   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Instructions Uncollected rent. Instructions   If you are a cash-basis taxpayer, do not deduct uncollected rent. Instructions Because you have not included it in your income, it is not deductible. Instructions Vacant rental property. Instructions   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Instructions However, you cannot deduct any loss of rental income for the period the property is vacant. Instructions Vacant while listed for sale. Instructions   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Instructions If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Instructions Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Instructions Improvements. Instructions   You must capitalize any expense you pay to improve your rental property. Instructions An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Instructions Betterments. Instructions   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Instructions Restoration. Instructions   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Instructions Adaptation. Instructions   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Instructions Separate the costs of repairs and improvements, and keep accurate records. Instructions You will need to know the cost of improvements when you sell or depreciate your property. Instructions The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Instructions Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Instructions Insurance premiums paid in advance. Instructions   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Instructions You cannot deduct the total premium in the year you pay it. Instructions Legal and other professional fees. Instructions   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Instructions For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Instructions You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Instructions Local benefit taxes. Instructions   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Instructions These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Instructions However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Instructions Local transportation expenses. Instructions    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Instructions However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Instructions See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Instructions   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Instructions For 2013, the standard mileage rate for business use is 56. Instructions 5 cents per mile. Instructions For more information, see chapter 26. Instructions    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Instructions In addition, you must complete Form 4562, Part V, and attach it to your tax return. Instructions Rental of equipment. Instructions   You can deduct the rent you pay for equipment that you use for rental purposes. Instructions However, in some cases, lease contracts are actually purchase contracts. Instructions If so, you cannot deduct these payments. Instructions You can recover the cost of purchased equipment through depreciation. Instructions Rental of property. Instructions   You can deduct the rent you pay for property that you use for rental purposes. Instructions If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Instructions Travel expenses. Instructions   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Instructions You must properly allocate your expenses between rental and nonrental activities. Instructions You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Instructions You recover the cost of improvements by taking depreciation. Instructions For information on travel expenses, see chapter 26. Instructions    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Instructions   See Rental Expenses in Publication 527 for more information. Instructions Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Instructions You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Instructions You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Instructions However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Instructions Example. Instructions Your tax year is the calendar year. Instructions You moved from your home in May and started renting it out on June 1. Instructions You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Instructions Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Instructions Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Instructions You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Instructions You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. Instructions There is no change in the types of expenses deductible for the personal-use part of your property. Instructions Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Instructions You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Instructions You do not have to divide the expenses that belong only to the rental part of your property. Instructions For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Instructions If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Instructions You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Instructions How to divide expenses. Instructions   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. Instructions You can use any reasonable method for dividing the expense. Instructions It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Instructions The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Instructions Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Instructions You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Instructions For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Instructions Where to report. Instructions   Report your not-for-profit rental income on Form 1040, line 21. Instructions For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Instructions   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. Instructions You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Instructions Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Instructions In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Instructions Only your rental expenses may be deducted on Schedule E (Form 1040). Instructions Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Instructions You must also determine if the dwelling unit is considered a home. Instructions The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Instructions Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Instructions There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Instructions Dwelling unit. Instructions   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Instructions It also includes all structures or other property belonging to the dwelling unit. Instructions A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Instructions   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Instructions Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Instructions Example. Instructions   You rent a room in your home that is always available for short-term occupancy by paying customers. Instructions You do not use the room yourself, and you allow only paying customers to use the room. Instructions The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Instructions Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Instructions When dividing your expenses, follow these rules. Instructions Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Instructions This rule does not apply when determining whether you used the unit as a home. Instructions Any day that the unit is available for rent but not actually rented is not a day of rental use. Instructions Example. Instructions Your beach cottage was available for rent from June 1 through August 31 (92 days). Instructions During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Instructions The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Instructions Your family also used the cottage during the last 2 weeks of May (14 days). Instructions The cottage was not used at all before May 17 or after August 31. Instructions You figure the part of the cottage expenses to treat as rental expenses as follows. Instructions The cottage was used for rental a total of 85 days (92 − 7). Instructions The days it was available for rent but not rented (7 days) are not days of rental use. Instructions The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Instructions You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Instructions The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Instructions Your rental expenses are 85/99 (86%) of the cottage expenses. Instructions Note. Instructions When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Instructions Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Instructions Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Instructions If you have a net loss, you may not be able to deduct all of the rental expenses. Instructions See Dwelling Unit Used as a Home, next. Instructions Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Instructions You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Instructions See What is a day of personal use , later. Instructions Fair rental price. Instructions   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Instructions The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Instructions   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Instructions Instead, count it as a day of personal use in applying both (1) and (2) above. Instructions What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Instructions You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Instructions However, see Days used as a main home before or after renting , later. Instructions A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Instructions Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Instructions ), and lineal descendants (children, grandchildren, etc. Instructions ). Instructions Anyone under an arrangement that lets you use some other dwelling unit. Instructions Anyone at less than a fair rental price. Instructions Main home. Instructions   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Instructions Shared equity financing agreement. Instructions   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Instructions Donation of use of property. Instructions   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Instructions Examples. Instructions   The following examples show how to determine days of personal use. Instructions Example 1. Instructions You and your neighbor are co-owners of a condominium at the beach. Instructions Last year, you rented the unit to vacationers whenever possible. Instructions The unit was not used as a main home by anyone. Instructions Your neighbor used the unit for 2 weeks last year; you did not use it at all. Instructions Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Instructions Example 2. Instructions You and your neighbors are co-owners of a house under a shared equity financing agreement. Instructions Your neighbors live in the house and pay you a fair rental price. Instructions Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Instructions This is because your neighbors rent the house as their main home under a shared equity financing agreement. Instructions Example 3. Instructions You own a rental property that you rent to your son. Instructions Your son does not own any interest in this property. Instructions He uses it as his main home and pays you a fair rental price. Instructions Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Instructions Example 4. Instructions You rent your beach house to Joshua. Instructions Joshua rents his cabin in the mountains to you. Instructions You each pay a fair rental price. Instructions You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Instructions Days used for repairs and maintenance. Instructions   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Instructions Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Instructions Days used as a main home before or after renting. Instructions   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Instructions Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Instructions You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Instructions However, this special rule does not apply when dividing expenses between rental and personal use. Instructions Examples. Instructions   The following examples show how to determine whether you used your rental property as a home. Instructions Example 1. Instructions You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Instructions You rented the basement apartment at a fair rental price to college students during the regular school year. Instructions You rented to them on a 9-month lease (273 days). Instructions You figured 10% of the total days rented to others at a fair rental price is 27 days. Instructions During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Instructions Your basement apartment was used as a home because you used it for personal purposes for 30 days. Instructions Rent-free use by your brothers is considered personal use. Instructions Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Instructions Example 2. Instructions You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Instructions Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Instructions You figured 10% of the total days rented to others at a fair rental price is 3 days. Instructions The room was used as a home because you used it for personal purposes for 21 days. Instructions That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Instructions Example 3. Instructions You own a condominium apartment in a resort area. Instructions You rented it at a fair rental price for a total of 170 days during the year. Instructions For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Instructions Your family actually used the apartment for 10 of those days. Instructions Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Instructions You figured 10% of the total days rented to others at a fair rental price is 16 days. Instructions Your family also used the apartment for 7 other days during the year. Instructions You used the apartment as a home because you used it for personal purposes for 17 days. Instructions That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Instructions Minimal rental use. Instructions   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Instructions See Used as a home but rented less than 15 days , later, for more information. Instructions Limit on deductions. Instructions   Renting a dwelling unit that is considered a home is not a passive activity. Instructions Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Instructions The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Instructions Any expenses carried forward to the next year will be subject to any limits that apply for that year. Instructions This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Instructions   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Instructions Reporting Income and Deductions Property not used for personal purposes. Instructions   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Instructions Property used for personal purposes. Instructions   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Instructions Not used as a home. Instructions   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Instructions Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Instructions The expenses for personal use are not deductible as rental expenses. Instructions   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Instructions Used as a home but rented less than 15 days. Instructions   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Instructions You are not required to report the rental income and rental expenses from this activity. Instructions The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Instructions See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Instructions Used as a home and rented 15 days or more. Instructions   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Instructions Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Instructions The expenses for personal use are not deductible as rental expenses. Instructions   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Instructions You do not need to use Worksheet 9-1. Instructions   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Instructions To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Instructions Depreciation You recover the cost of income-producing property through yearly tax deductions. Instructions You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Instructions Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Instructions You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Instructions You can deduct depreciation only on the part of your property used for rental purposes. Instructions Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Instructions You may have to use Form 4562 to figure and report your depreciation. Instructions See How To Report Rental Income and Expenses , later. Instructions Alternative minimum tax (AMT). Instructions    If you use accelerated depreciation, you may be subject to the AMT. Instructions Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Instructions Claiming the correct amount of depreciation. Instructions   You should claim the correct amount of depreciation each tax year. Instructions If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Instructions   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Instructions S Individual Income Tax Return. Instructions If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Instructions See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Instructions Changing your accounting method to deduct unclaimed depreciation. Instructions   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Instructions In some instances, that consent is automatic. Instructions For more information, see chapter 1 of Publication 946. Instructions Land. Instructions   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Instructions The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Instructions More information. Instructions   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Instructions Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Instructions You must consider these rules in the order shown below. Instructions At-risk rules. Instructions These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Instructions This applies only if the real property was placed in service after 1986. Instructions Passive activity limits. Instructions Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Instructions However, there are exceptions. Instructions At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Instructions Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Instructions In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Instructions You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Instructions See Publication 925 for more information. Instructions Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Instructions For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Instructions Limits on passive activity deductions and credits. Instructions    Deductions or losses from passive activities are limited. Instructions You generally cannot offset income, other than passive income, with losses from passive activities. Instructions Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Instructions Any excess loss or credit is carried forward to the next tax year. Instructions   For a detailed discussion of these rules, see Publication 925. Instructions    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Instructions Real estate professionals. Instructions   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Instructions For a detailed discussion of the requirements, see Publication 527. Instructions For a detailed discussion of material participation, see Publication 925. Instructions Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Instructions Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Instructions Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Instructions This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Instructions Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Instructions Active participation. Instructions   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Instructions Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Instructions Maximum special allowance. Instructions   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Instructions   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Instructions If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Instructions   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Instructions More information. Instructions   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Instructions How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Instructions However, do not use that schedule to report a not-for-profit activity. Instructions See Not Rented for Profit, earlier. Instructions Providing substantial services. Instructions   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Instructions Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Instructions For information, see Publication 334, Tax Guide for Small Business. Instructions You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Instructions   Use Form 1065, U. Instructions S. Instructions Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Instructions Qualified joint venture. Instructions   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Instructions This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Instructions For more information, see Publication 527. Instructions Form 1098, Mortgage Interest Statement. Instructions    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. Instructions If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Instructions Attach a statement to your return showing the name and address of the other person. Instructions In the left margin of Schedule E, next to line 13, enter “See attached. Instructions ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Instructions , you normally report your rental income and expenses on Schedule E, Part I. Instructions List your total income, expenses, and depreciation for each rental property. Instructions Be sure to enter the number of fair rental and personal use days on line 2. Instructions If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Instructions Complete lines 1 and 2 for each property. Instructions However, fill in lines 23a through 26 on only one Schedule E. Instructions On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Instructions To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Instructions If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Instructions Form 6198, At-Risk Limitations. Instructions See At-Risk Rules , earlier. Instructions Also see Publication 925. Instructions Form 8582, Passive Activity Loss Limitations. Instructions See Passive Activity Limits , earlier. Instructions Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Instructions If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Instructions Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Instructions Worksheet 9-1. Instructions Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Instructions Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Instructions ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Instructions Rental Use Percentage A. Instructions Total days available for rent at fair rental price A. Instructions       B. Instructions Total days available for rent (line A) but not rented B. Instructions       C. Instructions Total days of rental use. Instructions Subtract line B from line A C. Instructions       D. Instructions Total days of personal use (including days rented at less than fair rental price) D. Instructions       E. Instructions Total days of rental and personal use. Instructions Add lines C and D E. Instructions       F. Instructions Percentage of expenses allowed for rental. Instructions Divide line C by line E     F. Instructions   PART II. Instructions Allowable Rental Expenses 1. Instructions Enter rents received 1. Instructions   2a. Instructions Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Instructions       b. Instructions Enter the rental portion of real estate taxes b. Instructions       c. Instructions Enter the rental portion of deductible casualty and theft losses (see instructions) c. Instructions       d. Instructions Enter direct rental expenses (see instructions) d. Instructions       e. Instructions Fully deductible rental expenses. Instructions Add lines 2a–2d. Instructions Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Instructions   3. Instructions Subtract line 2e from line 1. Instructions If zero or less, enter -0- 3. Instructions   4a. Instructions Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Instructions       b. Instructions Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Instructions       c. Instructions Carryover of operating expenses from 2012 worksheet c. Instructions       d. Instructions Add lines 4a–4c d. Instructions       e. Instructions Allowable expenses. Instructions Enter the smaller of line 3 or line 4d (see instructions) 4e. Instructions   5. Instructions Subtract line 4e from line 3. Instructions If zero or less, enter -0- 5. Instructions   6a. Instructions Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Instructions       b. Instructions Enter the rental portion of depreciation of the dwelling unit b. Instructions       c. Instructions Carryover of excess casualty losses and depreciation from 2012 worksheet c. Instructions       d. Instructions Add lines 6a–6c d. Instructions       e. Instructions Allowable excess casualty and theft losses and depreciation. Instructions Enter the smaller of  line 5 or line 6d (see instructions) 6e. Instructions   PART III. Instructions Carryover of Unallowed Expenses to Next Year 7a. Instructions Operating expenses to be carried over to next year. Instructions Subtract line 4e from line 4d 7a. Instructions   b. Instructions Excess casualty and theft losses and depreciation to be carried over to next year. Instructions  Subtract line 6e from line 6d b. Instructions   Worksheet 9-1 Instructions. Instructions Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Instructions Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Instructions Line 2a. Instructions Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Instructions Do not include interest on a loan that did not benefit the dwelling unit. Instructions For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Instructions Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Instructions Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Instructions   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Instructions See the Schedule A instructions. Instructions However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Instructions See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Instructions Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Instructions   Note. Instructions Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Instructions Instead, figure the personal portion on a separate Schedule A. Instructions If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Instructions           Line 2c. Instructions Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Instructions To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Instructions If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Instructions On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Instructions Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Instructions   Note. Instructions Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Instructions Instead, figure the personal portion on a separate Form 4684. Instructions           Line 2d. Instructions Enter the total of your rental expenses that are directly related only to the rental activity. Instructions These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Instructions Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Instructions           Line 2e. Instructions You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Instructions Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Instructions           Line 4b. Instructions On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Instructions If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Instructions Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Instructions           Line 4e. Instructions You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Instructions *           Line 6a. Instructions To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Instructions   A. Instructions Enter the amount from Form 4684, line 10       B. Instructions Enter the rental portion of line A       C. Instructions Enter the amount from line 2c of this worksheet       D. Instructions Subtract line C from line B. Instructions Enter the result here and on line 6a of this worksheet               Line 6e. Instructions You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Instructions * *Allocating the limited deduction. Instructions If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Instructions Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Instructions Prev  Up  Next   Home   More Online Publications
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1.USA.gov Data

About The Data

1.USA.gov URLs are created whenever anyone shortens a .gov or .mil URL using bitly.

We provide a raw pub/sub feed of data created any time anyone clicks on a 1.USA.gov URL. The pub/sub endpoint responds to http requests for any 1.USA.gov URL and returns a stream of JSON entries, one per line, that represent real-time clicks.

If you are using the 1.USA.gov data and have feedback or want to tell us about your product, please e-mail us.

How to Access The Data

You can access the feed at http://developer.usa.gov/1usagov

Measured Voice stores archives of the raw data. They created this archive in anticipation of the 1.USA.gov Hack Day so other developers could more easily access it.

The JSON data dictionary is as follows:

{
        "a": USER_AGENT, 
        "c": COUNTRY_CODE, # 2-character iso code
        "nk": KNOWN_USER,  # 1 or 0. 0=this is the first time we've seen this browser
        "g": GLOBAL_BITLY_HASH, 
        "h": ENCODING_USER_BITLY_HASH,
        "l": ENCODING_USER_LOGIN,
        "hh": SHORT_URL_CNAME,
        "r": REFERRING_URL,
        "u": LONG_URL,
        "t": TIMESTAMP,
        "gr": GEO_REGION,
        "ll": [LATITUDE, LONGITUDE],
        "cy": GEO_CITY_NAME,
        "tz": TIMEZONE # in http://en.wikipedia.org/wiki/Zoneinfo format
        "hc": TIMESTAMP OF TIME HASH WAS CREATED, 
        "al": ACCEPT_LANGUAGE http://www.w3.org/Protocols/rfc2616/rfc2616-sec14.html#sec14.4 
    }


Code from the 1.USA.gov Hack Day

We held a nationwide 1.USA.gov Hack Day on July 29, 2011 to encourage people to explore the 1.USA.gov data. The following code was created by participants and shared publicly for others to use:

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Projects from the 1.USA.gov Hack Day

A number of items were created in anticipation of and at the Hack Day. Most tools centered around finding popular links, showing links by location, and using click data to enhance security:

  • Popular now - Barg Upender and Adam created a site called PopGov.us that shows which government links are popular in real time.
  • Popularity by day - Measured Voice created GovClicks to show the most popular links per day. GovClicks is built using Gogogon which consumes the 1.USA.Gov click feed and generates daily rankings of URLs.
  • NASA links - Adam Laiacano analyzed 1.USA.gov data and found that 42% of all clicks on 1.USA.gov links go to NASA websites. He created a map that shows that people in Europe are more likely to only click on NASA links, while people in the United States click on links from a wider variety of government links.
  • Across the world - Helmut Hissen made an animation that shows clicks across the globe on 1.USA.gov links from June 2 through July 14. Red flashes represent clicks from non-mobile devices, and green flashes represent clicks from mobile devices. Note that the final NASA Shuttle launch occurred on July 8. There’s a dramatic increase in activity at the 1:24 mark.
  • Map of clicks - Chris Metcalf built a tool that ingests the 1.USA.gov data and feeds it into Data.gov. It also feeds the data into a Google Map to show clicks based on location.
  • Popularity by location - Robert built a tool that searches for the most popular links near your city or within your country.
  • NASA shuttle launch - Bitly created a visualization that shows clicks around the globe that relate to the NASA shuttle launch on July 8.
  • Sharing by domain - Shreyas Karnik looked at which government domains are commonly shortened at a particular point of time and from what location. The resulted in a map showing the location of where the top 10 domains are shared.
  • DNSSEC status - Earl Crane, Scott Rose, and Richard Bullington-McGuire worked on a tool to look at the popularity of 1.USA.gov links against the DNSSEC status of .gov domains. Their project is still in progress, but the code is available to the public (gogogon fork and DNSSEC List Walk).
  • DNSSEC status visualization - Duane Wessels graphed the DNSSEC status of domains by popularity of short URLs from that domain. The size of nodes in the graph represent the number of URLs at or below that name that were shortened. A number of agencies have DNSSEC deployed on their own domains, but employ third party CDN services, such as Akamai, which do not utilize DNSSEC at this point. Scripts and additional results are also available.
  • Twitter mentions - Dmitry Kachaev compared the list of .gov domain names from Data.gov against 1.USA.gov data. He found that only 296 registered domains, out of 1,731, were mentioned on Twitter in the past 60 days. He also created Python code to get archived click data.
  • Creation and clicks - Harlan Harris looked at the time difference between when a link was created and when it was clicked. He created density plots to show the results. Results are available on his blog.
  • Word cloud - Hani Anani used 1.USA.gov data to identify popular government links, and then analyzed the contents with Open Calais to create a word cloud that summarizes popular government topics in near real time.
  • Sonifications - Niki Yoshiuchi from the New York event created a sonification, or audio representation of the data. Joachim Gossmann is also started working on a variety of sonifications.

Terms of Service

By using this data, you agree to the Terms of Service.

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The Instructions

Instructions 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. Instructions S. Instructions Taxpayer Identification NumbersUnexpected payment. Instructions Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Instructions Electronic reporting. Instructions Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Instructions S. Instructions Real Property InterestForeign corporations. Instructions Domestic corporations. Instructions U. Instructions S. Instructions real property holding corporations. Instructions Partnerships. Instructions Trusts and estates. Instructions Domestically controlled QIE. Instructions Late filing of certifications or notices. Instructions Certifications. Instructions Liability of agent or qualified substitute. Instructions Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Instructions Withholding of Tax In most cases, a foreign person is subject to U. Instructions S. Instructions tax on its U. Instructions S. Instructions source income. Instructions Most types of U. Instructions S. Instructions source income received by a foreign person are subject to U. Instructions S. Instructions tax of 30%. Instructions 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. Instructions The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Instructions 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. Instructions In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Instructions S. Instructions source income. Instructions Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Instructions NRA withholding does not include withholding under section 1445 of the Code (see U. Instructions S. Instructions Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Instructions A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Instructions However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Instructions S. Instructions person is not required to withhold. Instructions 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. Instructions Withholding Agent You are a withholding agent if you are a U. Instructions S. Instructions 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. Instructions 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. Instructions S. Instructions branch of certain foreign banks and insurance companies. Instructions 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. Instructions Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Instructions In most cases, the U. Instructions S. Instructions person who pays an amount subject to NRA withholding is the person responsible for withholding. Instructions However, other persons may be required to withhold. Instructions 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. Instructions 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. Instructions Liability for tax. Instructions   As a withholding agent, you are personally liable for any tax required to be withheld. Instructions This liability is independent of the tax liability of the foreign person to whom the payment is made. Instructions If you fail to withhold and the foreign payee fails to satisfy its U. Instructions S. Instructions tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Instructions   The applicable tax will be collected only once. Instructions If the foreign person satisfies its U. Instructions S. Instructions tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Instructions Determination of amount to withhold. Instructions   You must withhold on the gross amount subject to NRA withholding. Instructions You cannot reduce the gross amount by any deductions. Instructions However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Instructions   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. Instructions In no case, however, should you withhold more than 30% of the total amount paid. Instructions Or, you may make a reasonable estimate of the amount from U. Instructions S. Instructions sources and put a corresponding part of the amount due in escrow until the amount from U. Instructions S. Instructions sources can be determined, at which time withholding becomes due. Instructions When to withhold. Instructions   Withholding is required at the time you make a payment of an amount subject to withholding. Instructions 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. Instructions A payment is considered made to a person if it is paid for that person's benefit. Instructions 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. Instructions A payment also is considered made to a person if it is made to that person's agent. Instructions   A U. Instructions S. Instructions partnership should withhold when any distributions that include amounts subject to withholding are made. Instructions However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Instructions S. Instructions 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. Instructions If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Instructions A U. Instructions S. Instructions 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. Instructions To the extent a U. Instructions S. Instructions 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. Instructions 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. Instructions (See Returns Required , later. Instructions ) 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. Instructions Form 1099 reporting and backup withholding. Instructions    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Instructions S. Instructions person. Instructions You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Instructions S. Instructions person that is subject to Form 1099 reporting if any of the following apply. Instructions The U. Instructions S. Instructions person has not provided its taxpayer identification number (TIN) in the manner required. Instructions The IRS notifies you that the TIN furnished by the payee is incorrect. Instructions There has been a notified payee underreporting. Instructions There has been a payee certification failure. Instructions In most cases, a TIN must be provided by a U. Instructions S. Instructions non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Instructions A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Instructions 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. Instructions S. Instructions person. Instructions For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Instructions S. Instructions person subject to Form 1099 reporting. Instructions See Identifying the Payee , later, for more information. Instructions Also see Section S. Instructions 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. Instructions 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. Instructions Wages paid to employees. Instructions   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Instructions See Pay for Personal Services Performed , later. Instructions Effectively connected income by partnerships. Instructions   A withholding agent that is a partnership (whether U. Instructions S. Instructions or foreign) is also responsible for withholding on its income effectively connected with a U. Instructions S. Instructions trade or business that is allocable to foreign partners. Instructions See Partnership Withholding on Effectively Connected Income , later, for more information. Instructions U. Instructions S. Instructions real property interest. Instructions   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Instructions S. Instructions real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Instructions S. Instructions real property interest to a shareholder, partner, or beneficiary that is a foreign person. Instructions See U. Instructions S. Instructions Real Property Interest , later. Instructions Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Instructions It does not apply to payments made to U. Instructions S. Instructions persons. Instructions Usually, you determine the payee's status as a U. Instructions S. Instructions or foreign person based on the documentation that person provides. Instructions See Documentation , later. Instructions 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. Instructions 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. Instructions However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Instructions U. Instructions S. Instructions agent of foreign person. Instructions   If you make a payment to a U. Instructions S. Instructions person and you have actual knowledge that the U. Instructions S. Instructions person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Instructions However, if the U. Instructions S. Instructions 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. Instructions   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. Instructions S. Instructions person and not as a payment to a foreign person. Instructions You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Instructions Disregarded entities. Instructions   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. Instructions The payee of a payment made to a disregarded entity is the owner of the entity. Instructions   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. Instructions   If the owner is a U. Instructions S. Instructions person, you do not apply NRA withholding. Instructions However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Instructions 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. Instructions Flow-Through Entities The payees of payments (other than income effectively connected with a U. Instructions S. Instructions trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Instructions This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Instructions Income that is, or is deemed to be, effectively connected with the conduct of a U. Instructions S. Instructions trade or business of a flow-through entity is treated as paid to the entity. Instructions All of the following are flow-through entities. Instructions A foreign partnership (other than a withholding foreign partnership). Instructions A foreign simple or foreign grantor trust (other than a withholding foreign trust). Instructions A fiscally transparent entity receiving income for which treaty benefits are claimed. Instructions See Fiscally transparent entity , later. Instructions 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. Instructions You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Instructions You must determine whether the owners or beneficiaries of a flow-through entity are U. Instructions S. Instructions 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. Instructions 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. Instructions 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. Instructions See Documentation and Presumption Rules , later. Instructions Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Instructions Foreign partnerships. Instructions    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. Instructions 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. Instructions 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. Instructions 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. Instructions Example 1. Instructions A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Instructions S. Instructions citizen. Instructions You make a payment of U. Instructions S. Instructions source interest to the partnership. Instructions 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. Instructions S. Instructions citizen. Instructions The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Instructions You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Instructions Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Instructions Report the payment to the U. Instructions S. Instructions citizen on Form 1099-INT. Instructions Example 2. Instructions A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Instructions The second partnership has two partners, both nonresident alien individuals. Instructions You make a payment of U. Instructions S. Instructions source interest to the first partnership. Instructions 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. Instructions In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Instructions The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Instructions 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. Instructions Example 3. Instructions You make a payment of U. Instructions S. Instructions source dividends to a withholding foreign partnership. Instructions The partnership has two partners, both foreign corporations. Instructions 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. Instructions You must treat the partnership as the payee of the dividends. Instructions Foreign simple and grantor trust. Instructions   A trust is foreign unless it meets both of the following tests. Instructions A court within the United States is able to exercise primary supervision over the administration of the trust. Instructions One or more U. Instructions S. Instructions persons have the authority to control all substantial decisions of the trust. Instructions   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Instructions A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Instructions   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Instructions The payees of a payment made to a foreign grantor trust are the owners of the trust. Instructions 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. Instructions 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. Instructions Example. Instructions A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Instructions S. Instructions citizen. Instructions You make a payment of interest to the foreign trust. Instructions 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. Instructions S. Instructions citizen. Instructions 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. Instructions You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Instructions Report the payment to the nonresident aliens on Forms 1042-S. Instructions Report the payment to the U. Instructions S. Instructions citizen on Form 1099-INT. Instructions Fiscally transparent entity. Instructions   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. Instructions 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. Instructions ). Instructions 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. Instructions 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. Instructions 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. Instructions   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Instructions Example. Instructions 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. Instructions A has two interest holders, B and C. Instructions B is a corporation organized under the laws of country Y. Instructions C is a corporation organized under the laws of country Z. Instructions Both countries Y and Z have an income tax treaty in force with the United States. Instructions A receives royalty income from U. Instructions S. Instructions sources that is not effectively connected with the conduct of a trade or business in the United States. Instructions For U. Instructions S. Instructions income tax purposes, A is treated as a partnership. Instructions 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. Instructions 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. Instructions Accordingly, A is fiscally transparent in its jurisdiction, country X. Instructions B and C are not fiscally transparent under the laws of their respective countries of incorporation. Instructions 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. Instructions 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. Instructions S. Instructions source royalty income for purposes of the U. Instructions S. Instructions -Y income tax treaty. Instructions 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. Instructions Therefore, A is not treated as fiscally transparent under the laws of country Z. Instructions Accordingly, C is not treated as deriving its share of the U. Instructions S. Instructions source royalty income for purposes of the U. Instructions S. Instructions -Z income tax treaty. Instructions 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. Instructions This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Instructions 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. Instructions An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Instructions A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Instructions 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. Instructions You must determine whether the customers or account holders of a foreign intermediary are U. Instructions S. Instructions or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Instructions You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Instructions 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. Instructions See Documentation and Presumption Rules , later. Instructions Nonqualified intermediary. Instructions   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Instructions The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Instructions Example. Instructions You make a payment of interest to a foreign bank that is a nonqualified intermediary. Instructions 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. Instructions S. Instructions person for whom the bank is collecting the payments. Instructions 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. Instructions The account holders are the payees of the interest payment. Instructions 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. Instructions S. Instructions person on Form 1099-INT. Instructions Qualified intermediary. Instructions   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Instructions S. Instructions intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Instructions 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. Instructions In this situation, the QI is required to withhold the tax. Instructions You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Instructions   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. Instructions 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. Instructions S. Instructions person. Instructions Branches of financial institutions. Instructions   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. Instructions The countries with approved KYC rules are listed on IRS. Instructions gov. Instructions QI withholding agreement. Instructions   Foreign financial institutions and foreign branches of U. Instructions S. Instructions financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Instructions   A QI is entitled to certain simplified withholding and reporting rules. Instructions In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Instructions   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Instructions These forms, and the procedures required to obtain a QI withholding agreement are available at www. Instructions irs. Instructions gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Instructions Documentation. Instructions   A QI is not required to forward documentation obtained from foreign account holders to the U. Instructions S. Instructions withholding agent from whom the QI receives a payment of U. Instructions S. Instructions source income. Instructions The QI maintains such documentation at its location and provides the U. Instructions S. Instructions withholding agent with withholding rate pools. Instructions A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Instructions   A QI is required to provide the U. Instructions S. Instructions withholding agent with information regarding U. Instructions S. Instructions persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Instructions   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. Instructions 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. Instructions Form 1042-S reporting. Instructions   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. Instructions Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Instructions Collective refund procedures. Instructions   A QI may seek a refund on behalf of its direct account holders. Instructions 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. Instructions U. Instructions S. Instructions branches of foreign banks and foreign insurance companies. Instructions   Special rules apply to a U. Instructions S. Instructions branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Instructions If you agree to treat the branch as a U. Instructions S. Instructions person, you may treat the branch as a U. Instructions S. Instructions payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Instructions S. Instructions branch on which the agreement is evidenced. Instructions If you treat the branch as a U. Instructions S. Instructions payee, you are not required to withhold. Instructions Even though you agree to treat the branch as a U. Instructions S. Instructions person, you must report the payment on Form 1042-S. Instructions   A financial institution organized in a U. Instructions S. Instructions possession is treated as a U. Instructions S. Instructions branch. Instructions The special rules discussed in this section apply to a possessions financial institution. Instructions   If you are paying a U. Instructions S. Instructions 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. Instructions S. Instructions person for amounts subject to NRA withholding. Instructions Consequently, amounts not subject to NRA withholding that are paid to a U. Instructions S. Instructions branch are not subject to Form 1099 reporting or backup withholding. Instructions   Alternatively, a U. Instructions S. Instructions branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Instructions 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. Instructions See Nonqualified Intermediaries under  Documentation, later. Instructions   If the U. Instructions S. Instructions 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. Instructions Withholding foreign partnership and foreign trust. Instructions   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. Instructions 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. Instructions   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. Instructions A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Instructions 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. Instructions WP and WT withholding agreements. Instructions   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Instructions Also see the following items. Instructions Revenue Procedure 2004-21. Instructions Revenue Procedure 2005-77. Instructions Employer identification number (EIN). Instructions   A completed Form SS-4 must be submitted with the application for being a WP or WT. Instructions The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Instructions Documentation. Instructions   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. Instructions 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. Instructions The Form W-8IMY must contain the WP-EIN or WT-EIN. Instructions Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Instructions 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. Instructions S. Instructions person. Instructions It also includes a foreign branch of a U. Instructions S. Instructions financial institution if the foreign branch is a qualified intermediary. Instructions In most cases, the U. Instructions S. Instructions branch of a foreign corporation or partnership is treated as a foreign person. Instructions Nonresident alien. Instructions   A nonresident alien is an individual who is not a U. Instructions S. Instructions citizen or a resident alien. Instructions A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Instructions Married to U. Instructions S. Instructions citizen or resident alien. Instructions   Nonresident alien individuals married to U. Instructions S. Instructions citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Instructions However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Instructions Wages paid to these individuals are subject to graduated withholding. Instructions See Wages Paid to Employees—Graduated Withholding . Instructions Resident alien. Instructions   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. Instructions Green card test. Instructions 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. Instructions This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Instructions Substantial presence test. Instructions An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Instructions 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. Instructions   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. Instructions This exception is for a limited period of time. Instructions   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Instructions Note. Instructions   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. Instructions For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Instructions Resident of a U. Instructions S. Instructions possession. Instructions   A bona fide resident of Puerto Rico, the U. Instructions S. Instructions Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Instructions S. Instructions citizen or a U. Instructions S. Instructions national is treated as a nonresident alien for the withholding rules explained here. Instructions 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. Instructions   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Instructions S. Instructions Possessions. Instructions Foreign corporations. Instructions   A foreign corporation is one that does not fit the definition of a domestic corporation. Instructions 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. Instructions Guam or Northern Mariana Islands corporations. Instructions   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). Instructions Note. Instructions   The provisions discussed below under U. Instructions S. Instructions 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. Instructions U. Instructions S. Instructions Virgin Islands and American Samoa corporations. Instructions   A corporation created or organized in, or under the laws of, the U. Instructions S. Instructions 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. Instructions S. Instructions 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. Instructions S. Instructions Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Instructions Foreign private foundations. Instructions   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Instructions 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. Instructions Other foreign organizations, associations, and charitable institutions. Instructions   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. Instructions 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. Instructions   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Instructions   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. Instructions U. Instructions S. Instructions branches of foreign persons. Instructions   In most cases, a payment to a U. Instructions S. Instructions branch of a foreign person is a payment made to the foreign person. Instructions However, you may treat payments to U. Instructions S. Instructions branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Instructions S. Instructions regulatory supervision as payments made to a U. Instructions S. Instructions person, if you and the U. Instructions S. Instructions branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Instructions For this purpose, a financial institution organized under the laws of a U. Instructions S. Instructions possession is treated as a U. Instructions S. Instructions branch. Instructions 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. Instructions The payee is a U. Instructions S. Instructions person. Instructions The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Instructions In most cases, you must get the documentation before you make the payment. Instructions The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Instructions See Standards of Knowledge , later. Instructions If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Instructions 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. Instructions The specific types of documentation are discussed in this section. Instructions However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Instructions 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. Instructions Section 1446 withholding. Instructions   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Instructions 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. Instructions 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. Instructions Joint owners. Instructions    If you make a payment to joint owners, you need to get documentation from each owner. Instructions Form W-9. Instructions   In most cases, you can treat the payee as a U. Instructions S. Instructions person if the payee gives you a Form W-9. Instructions The Form W-9 can be used only by a U. Instructions S. Instructions person and must contain the payee's taxpayer identification number (TIN). Instructions If there is more than one owner, you may treat the total amount as paid to a U. Instructions S. Instructions person if any one of the owners gives you a Form W-9. Instructions See U. Instructions S. Instructions Taxpayer Identification Numbers , later. Instructions U. Instructions S. Instructions persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Instructions Form W-8. Instructions   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Instructions Until further notice, you can rely upon Forms W-8 that contain a P. Instructions O. Instructions 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. Instructions S. Instructions person and that a street address is available. Instructions You may rely on Forms W-8 for which there is a U. Instructions S. Instructions mailing address provided you received the form prior to December 31, 2001. Instructions   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Instructions You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Instructions S. Instructions possession. Instructions Other documentation. Instructions   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Instructions 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. Instructions These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Instructions 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. Instructions Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Instructions   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. Instructions   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. Instructions 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. Instructions Claiming treaty benefits. Instructions   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. Instructions S. Instructions 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. Instructions   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. Instructions   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Instructions See Fiscally transparent entity discussed earlier under Flow-Through Entities. Instructions   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Instructions 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. Instructions   The exemptions from, or reduced rates of, U. Instructions S. Instructions tax vary under each treaty. Instructions You must check the provisions of the tax treaty that apply. Instructions 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. Instructions   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. Instructions 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. Instructions Exceptions to TIN requirement. Instructions   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. Instructions Income from marketable securities (discussed next). Instructions Unexpected payments to an individual (discussed under U. Instructions S. Instructions Taxpayer Identification Numbers ). Instructions Marketable securities. Instructions   A Form W-8BEN provided to claim treaty benefits does not need a U. Instructions S. Instructions TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Instructions For this purpose, income from a marketable security consists of the following items. Instructions Dividends and interest from stocks and debt obligations that are actively traded. Instructions Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Instructions 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. Instructions Income related to loans of any of the above securities. Instructions Offshore accounts. Instructions   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. Instructions   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. Instructions 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. Instructions An offshore account is an account maintained at an office or branch of a U. Instructions S. Instructions or foreign bank or other financial institution at any location outside the United States. Instructions   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Instructions This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Instructions 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. Instructions Documentary evidence. Instructions   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. Instructions 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. Instructions 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. Instructions 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. Instructions 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. Instructions 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. Instructions   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. Instructions (See Effectively Connected Income , later. Instructions )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Instructions   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Instructions S. Instructions trade or business is subject to withholding under section 1446. Instructions 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. Instructions    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. Instructions Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Instructions   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. Instructions S. Instructions 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. Instructions   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. Instructions   See Foreign Governments and Certain Other Foreign Organizations , later. Instructions 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. Instructions 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. Instructions The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Instructions Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Instructions S. Instructions Branches for United States Tax Withholding. Instructions   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Instructions S. Instructions 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. Instructions S. Instructions branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Instructions S. Instructions 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. Instructions For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Instructions 1446-5. Instructions Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Instructions 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. Instructions The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Instructions 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. Instructions Responsibilities. Instructions   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Instructions However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Instructions Instead, it provides you with a withholding statement that contains withholding rate pool information. Instructions 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. Instructions A qualified intermediary is required to provide you with information regarding U. Instructions S. Instructions persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Instructions S. Instructions person unless it has assumed Form 1099 reporting and backup withholding responsibility. Instructions For the alternative procedure for providing rate pool information for U. Instructions S. Instructions non-exempt persons, see the Form W-8IMY instructions. Instructions   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. Instructions   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Instructions Primary responsibility not assumed. Instructions   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. Instructions Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Instructions S. Instructions person subject to Form 1099 reporting and/or backup withholding. Instructions 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. Instructions Primary NRA withholding responsibility assumed. Instructions   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. Instructions S. Instructions person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Instructions 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. Instructions Primary NRA and Form 1099 responsibility assumed. Instructions   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. Instructions It is not necessary to associate the payment with withholding rate pools. Instructions Example. Instructions You make a payment of dividends to a QI. Instructions 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. Instructions S. Instructions individual who provides it with a Form W-9. Instructions Each customer is entitled to 20% of the dividend payment. Instructions The QI does not assume any primary withholding responsibility. Instructions 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. Instructions S. Instructions individual. Instructions 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. Instructions The part of the payment allocable to the U. Instructions S. Instructions individual (20%) is reportable on Form 1099-DIV. Instructions Smaller partnerships and trusts. Instructions   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. Instructions It is a foreign partnership or foreign simple or grantor trust. Instructions It is a direct account holder of the QI. Instructions It does not have any partner, beneficiary, or owner that is a U. Instructions S. Instructions person or a pass- through partner, beneficiary, or owner. Instructions   For information on these rules, see section 4A. Instructions 01 of the QI agreement. Instructions This is found in Appendix 3 of Revenue Procedure 2003-64. Instructions Also see Revenue Procedure 2004-21. Instructions Related partnerships and trusts. Instructions    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Instructions It is a foreign partnership or foreign simple or grantor trust. Instructions 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. Instructions For information on these rules, see section 4A. Instructions 02 of the QI agreement. Instructions This is found in Appendix 3 of Revenue Procedure 2003-64. Instructions Also see Revenue Procedure 2005-77. Instructions Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Instructions S. Instructions 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. Instructions S. Instructions branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Instructions The NQI, flow-through entity, or U. Instructions S. Instructions branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Instructions A withholding statement must be updated to keep the information accurate prior to each payment. Instructions Withholding statement. Instructions   In most cases, a withholding statement must contain the following information. Instructions The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Instructions The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Instructions The status of the person for whom the documentation has been provided, such as whether the person is a U. Instructions S. Instructions exempt recipient (U. Instructions S. Instructions person exempt from Form 1099 reporting), U. Instructions S. Instructions non-exempt recipient (U. Instructions S. Instructions person subject to Form 1099 reporting), or a foreign person. Instructions 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. Instructions S. Instructions branch. Instructions The type of recipient the person is, based on the recipient codes used on Form 1042-S. Instructions Information allocating each payment, by income type, to each payee (including U. Instructions S. Instructions exempt and U. Instructions S. Instructions non-exempt recipients) for whom documentation has been provided. Instructions The rate of withholding that applies to each foreign person to whom a payment is allocated. Instructions A foreign payee's country of residence. Instructions If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Instructions ). Instructions 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. Instructions The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Instructions S. Instructions branch from which the payee will directly receive a payment. Instructions Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Instructions Alternative procedure. Instructions   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Instructions S. Instructions exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Instructions 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. Instructions You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Instructions    This alternative procedure cannot be used for payments to U. Instructions S. Instructions non-exempt recipients. Instructions Therefore, an NQI must always provide you with allocation information for all U. Instructions S. Instructions non-exempt recipients prior to a payment being made. Instructions Pooled withholding information. Instructions   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. Instructions 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. Instructions 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). Instructions 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. Instructions Failure to provide allocation information. Instructions   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. Instructions You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Instructions An NQI is deemed to have f