Written by: Gautam Chopra, Rita M. Ryan, JD, LLM
Late last month, the Internal Revenue Service (IRS) released an updated draft of Form W-9, Request for Taxpayer Identification Number and Certification. This form has an updated reporting requirement for flow-through entities to inform partnerships, trusts, or estates of the presence of either direct or indirect foreign partners, owners, or beneficiaries.
What is the Form W-9?
The Form W-9 is used by payors to request taxpayer information, as well as taxpayer identification numbers and federal tax classifications. The completed and signed Form W-9 is not provided to the IRS, however, the requesting entity uses this information to complete and file various returns to the IRS to report income paid, as well as to determine whether federal income tax withholding is required on the payment.
Updated Line 3b
The July draft form includes a new Line 3b check box for flow-through entities (this includes partnerships, trusts, or estates) that have either direct or indirect foreign partners, owners, or beneficiaries.
The draft instructions indicate that this box should be checked if you receive a Form W-8, Certificate of Foreign Status (Form W-8BEN, W-8BEN-E, or W-8IMY) from any partner, owner, or beneficiary.
The instructions specifically indicate that a partnership that provides a Form W-9 and checks the box on Line 3b may be required to complete Schedules K-2 and K-3. Noting, Schedule K-2 and K-3 requirements do not currently apply for trusts and estates.
The updated Form W-9 is still in draft; therefore, it is not officially in yet. Those requesting and/or completing the Form W-9 should continue to use the 2018 version until the updated form is officially released.
Wolf’s Insight
From the Partnership Perspective:
- The updated Form W-9 will result in additional internal tracking for partnerships to account for either the addition of, or divestment of foreign partners, in real-time. Coordination of Forms W-8 must also continue to ensure files remain up to date and updated Forms W-9/W-8 may need to be provided throughout the tax year.
- The checking of the box in Line 3b will be an easy indicator for potential non-resident withholding requirements, especially in the case where a foreign partner is selling, transferring, or exchanging a U.S. partnership interest.
- This information may provide more clarity for whether Schedule K-2/K-3 are required as part of Form 1065 tax filings for certain partnerships.
From the Estate and Trust Perspective:
- The continued tracking noted above will not be such a burden for trusts and estates since there is typically a set class/pool of beneficiaries. However, any updates in beneficiaries that either include the addition of, or removal of a foreign beneficiary will need to be noted and updated Forms W-8/W-9 provided.
- The question must be asked – does the inclusion of trust and estates in this updated Form W-9 hint that Schedule K-2 and K-3 will soon be required as part of Form 1041, S. Income Tax Return for Estates and Trusts filings?
If you have any questions regarding the updated requirement, please contact a member of Wolf’s International Tax team today.
