IRS Issues Guidance on Reporting Interest Paid to Nonresident Aliens (T.D. 9584)

The IRS has issued rules on reporting deposit interest payments to nonresident alien individuals. The rules affect commercial banks, savings institutions, credit unions, securities brokerages and insurance companies that pay interest on deposits and apply to interest payments made on or after January 1, 2013.

The final regulations eliminate the requirement in the 2011 proposed regulations (NPRM REG-146097-09; I.R.B. 2011-8, 516) that financial institutions include a statement informing the nonresident alien individual that the information may be furnished to the government of the country where the recipient resides. In addition, the final regulations clarify that a payor or middleman may rely on the permanent residence address provided on a valid Form W-8BEN, Beneficial Owners Certificate of Foreign Status for U.S. Tax Withholding, for purposes of determining the country of residence of a nonresident alien to whom reportable interest is paid, unless the payor or middleman knows or has reason to know that such documentation of the country of residence is unreliable or incorrect.

The final regulations also modify Proposed Reg. §31.3406(g)-1 to clarify that, consistent with the backup withholding rules, an interest payment described in Reg. §1.6049-8(a) is not subject to withholding under Code Sec. 3406 when the payor may treat the payee as a foreign person, without regard to whether the payor reported such interest, although a payor may be subject to penalties if it fails to report as required.

As under the prior regulations requiring reporting of interest paid to Canadian nonresident alien individuals, the final regulations define interest subject to reporting to mean interest paid on deposits as defined in Code Sec. 871(i)(2)(A), including deposits with persons carrying on a banking business, deposits with certain savings institutions, and certain amounts held by insurance companies under agreements to pay interest thereon.

The regulations are effective April 19, 2012.

T.D. 9584, 2012FED ¶47,022

Other References:

Code Sec. 3406

CCH Reference – 2012FED ¶33,641M

Code Sec. 6049

CCH Reference – 2012FED ¶36,025

CCH Reference – 2012FED ¶36,029

CCH Reference – 2012FED ¶36,032

CCH Reference – 2012FED ¶36,036

Tax Research Consultant

CCH Reference – TRC FILEBUS: 9,158.10

CCH Reference – TRC FILEBUS: 9,158.30

CCH Reference – TRC FILEBUS: 18,102


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