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U.S. Withholding Agent Frequently Asked Question

The following questions and answers (Q&As) were prepared in response to inquiries that have been proposed to the IRS by US withholding agents, major corporations and multi-national companies outside of the financial service community.  They are intended to provide a basic understanding and awareness of reporting and withholding requirements with regard to payments typically made by these types of entities to their foreign vendors and related types of service providers and payees.  Though these Q&As are applicable to the vendor payments of all types of companies – financial and non-financial – they are not designed to address payments made by financial service companies in their capacity as custodians or brokers of assets and income.

These Q&As do not constitute legal authority and may not be relied upon as such.  They do not amend, modify or add to the Income Tax Regulations or any other legal authority.       

Table of Contents:

  1. How to identify a non-resident alien (NRA) withholding and/or reporting responsibility under Chapter 3 of the Internal Revenue Code
  2. The benefits of compliance vs. non-compliance with regard to NRA withholding
  3. Suggested practices and procedures for identifying payments which are subject to reporting and/or withholding
  4. How to determine the amount to be withheld
  5. How to properly document the status or treaty claim of a foreign person
  6. How to report NRA payments and withholding
  7. What to expect from an IRS audit regarding NRA reporting and withholding responsibilities
  8. The IRS Electronic W-8 Memorandum of Understanding Program

1. How to identify a non-resident alien (NRA) withholding and/or reporting responsibility

Question 1:  Under what circumstances would a company become subject to U.S. NRA reporting or withholding requirements?

Answer 1:  When a company makes a payment of U.S. sourced fixed or determinable annual or periodic (FDAP) income to a foreign person not associated with such person’s U.S. trade or business that company may have an NRA reporting or withholding responsibility.  There are some exceptions to these requirements even for U.S. sourced payments. Treas. Reg. Sec. 1.1441-2 should be referenced for this purpose.

Question 2:  Who is considered a foreign person for U.S. tax purposes?

Answer 2:  A foreign person is an individual that is not a U.S. person.  Generally, this includes non-resident alien and it also includes U.S. branches of foreign corporations, foreign estates, foreign corporations and partnerships.  

For example, a foreign corporation is a corporation that was created or organized outside of the United States or under the law of a country other than the United States.  In general a non-resident alien is an individual whose permanent residence is outside of the United States and who is not a U.S. citizen.  The U.S. or foreign status should be documented for those payees who are paid FDAP income.  You should see Treas. Reg. Sec. 1.1441-1(b) (3) (ii) (E), concerning certain payments for services performed by individuals that are presumed made to foreign persons.  Refer to FAQ section 5 for more information on documentation requirements.

Question 3:  Please define FDAP income and include some specific examples.

Answer 3:  In general, in order for a payment to be subject to NRA withholding, it must be a payment of FDAP income.  FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more common expenses paid by US withholding agents which would result in FDAP income to their vendors and other service providers are  interest, royalties, compensation for personal services, rents,  pensions or annuities and gains from the sale or exchange of the patents, copyrights and similar intangibles that are described in I.R.C. Sec. 865(d).  See also Q&A-4 directly below.

Question 4:  What is U.S. sourced income?

Answer 4:  For FDAP income paid to a foreign person to be subject to NRA reporting and withholding, the payment must be U.S. sourced. 

Following are some basic rules for sourcing of certain types of FDAP payments by withholding agents and multi-nationals: 

1- Interest – If the debtor is a U.S. resident, the interest is generally U.S. sourced.
2- Royalties – If the subject property is used in the U.S., the royalty payment is U.S. sourced. Payments made in connection with the sale of certain intangible assets, including copyrights and patents, are generally sourced similar to royalties when the payments are contingent on the productivity, use or disposition of the intangible See I.R.C. Sec. 865(d).
3- Rents – If the rental property is located in the U.S., the rental payment is U.S. sourced.
4- Personal Services – If the services are performed in the U.S., the payment for those services is generally U.S. sourced.

The Internal Revenue Code sourcing rules are contained in Sections 861 through 865. Income tax treaties can sometimes modify these rules.

Question 5:  What is a withholding agent for NRA withholding purposes?

Answer 5:  For purposes of NRA withholding, a withholding agent is any person, U.S. or foreign, that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to NRA withholding.  A withholding agent includes but is not limited to individuals, U.S. corporations, foreign intermediaries and certain U.S. branches. See Treas. Reg. Sec. 1.1441-7(a).

A withholding agent is responsible to withhold tax on payments of U.S. sourced, FDAP income to foreign persons and to make deposits of such tax to the U.S. Treasury absent an applicable exclusion provided by the Code or an applicable income tax treaty.  If the withholding agent does not withhold and the foreign person does not satisfy its withholding tax obligation, the withholding agent and the foreign person will be held liable for the tax and any associated interest and penalties. See Internal Revenue Code Sec. 1461 and Treas. Reg. Sec. 1.1461-2(b).

The withholding agent is also responsible for correctly reporting on Form 1042-S the income paid and the withholding applied. See FAQ section 6 for more information about reporting.

Question 6:  What are the primary sections of the U.S. tax code and Regulations’ that govern NRA reporting and withholding?
 
Answer 6:  The primary Internal Revenue Code sections that govern NRA withholding are Sections 1.1441, 1.1442.

Question 7:  Where can I find additional information about NRA reporting and withholding?

Answer 7:  Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities provides information about NRA reporting and withholding responsibilities.  This publication can be obtained by downloading it at www.irs.gov/formspubs, by calling 1-800-829-3676, or by writing to the National Distribution Center, P.O. Box 8903, Bloomington, IL 61702-8903. 


2. The benefits of complying with the NRA withholding regulations

Question 8:  Why should we be concerned about withholding on these payments?  Isn’t the payment of withholding tax ultimately the responsibility of the payee? 

Answer 8:  Both the foreign person receiving the payment and the withholding agent making the payment are personally responsible for the tax on U.S. sourced, FDAP income paid to the foreign persons.  If the withholding agent (multi-national) fails to withhold, and the foreign person does not satisfy its tax obligation, the IRS will approach the U.S. withholding agent (multi-national) for any related tax liability, including any interest and penalties to which the liability is subject and other penalties for reporting failures.

Question 9:  What are the benefits to my company in ensuring compliance with these regulations?

Answer 9:  Though the NRA regulations hold the withholding agent (Multi-national) personally responsible for withholding tax, such tax need not become your company’s liability.  If you ensure that your company’s withholding and reporting practices are in compliance with these regulations and therefore withhold accordingly from payments made to foreign persons, you will never need to pay any of this tax out of your company’s funds.  Rather, the withholding tax will be withheld from the payment to the foreign vendor before it is paid.

In addition, by reporting and withholding properly, you will avoid costly interest and penalties for failure to withhold, failure to deposit funds, failure to file returns and failure to file information returns.

Question 10:  What is the potential cost to my company if we do not ensure compliance with these regulations?

Answer 10:  If you are not in compliance with the NRA regulations, your US Withholding company or multi-national will be exposed to a liability for withholding tax.  Withholding tax that could have been withheld from the payment now will become the liability of your company.  As the withholding agent, you will be required to remit the proper withholding tax to the IRS.

In addition, you may be required to pay interest and penalties with regard to under withholding, or incorrect reporting of amounts paid. 

3. Suggested practices and procedures for identifying payments which are subject to reporting and/or withholding

Question 11:  How can we review our books and records to determine if there were any reporting and/or withholding responsibilities?

Answer 11:  A detailed analysis of the accounts payable or similar systems should be undertaken to identify payments made to vendors that may be subject to NRA withholding and/or reporting.  The review should include determining three amounts:

1- Total amounts paid to foreign persons (foreign vendors).
2- Of the total amounts determined in step 1, determine what portions qualify as Fixed or Determinable, Annual or Periodic (FDAP) income to the foreign vendor.
3- Of the total amount determined in step 2, determine any amounts that are U.S. sourced.


Question 12:  How can payments to foreign vendors be determined?

Answer 12:  A computer analysis of all payments to all vendors should be made. Any record of a payment to a vendor that has any of the following might be considered for review as potentially foreign:

1- Address Fields
a)  Country = not USA, or blank
b)  State = not a U.S. state, or blank
c)  City = foreign city
d)  Zip Code = not xxxxx-xxxx pattern for U.S. address

2- Foreign Employee Identification Number - EIN’s issued to foreign entities usually starts with
       98 (98-xxxxxxx)

3- Foreign Individual taxpayer Identification  Number - ITIN’s issued to foreign persons start with 999 and the fourth digit is a 7 or an 8 (999-7/8x-xxxx)

4- Foreign Vendor Number - if your internal accounting system has vendor numbers or other identifiers to distinguish foreign and U.S. vendors

5- Any other indicator your system may have already incorporated that serves. This purpose.


Question 13:  How can payments to foreign vendors be determined as FDAP?

Answer 13:  Once all payments to foreign vendors have been determined, those which are FDAP must be selected. Common items of FDAP income applicable to vendors are listed in Q&A-3 above.

Note:  Review of the methodology that was used to characterize your expenses should be a part of the process.

Question 14:  How can payments to foreign vendors, which have been determined to be FDAP, be sourced as U.S. or as foreign?

Answer 14:  Each type of FDAP income has specific source rule as described briefly in Q&A-4 above. For these sourcing determinations all applicable documentation should be reviewed, bearing in mind the type of income paid. For example, in connection with payments for services, invoices and related documentation such as engagement letters and contracts should be reviewed to determine whether any services are performed in the U.S. { Note that if the source of an amount cannot be determined at the time of payment, the payment will be treated as U.S. sourced. Treas. Reg. 1.1441-2(a)}.

Question 15:  How can we review our books and records to determine if there are any reporting and/or withholding responsibilities for current years?

Answer 15:  All vendors should be classified as U.S or as foreign.

All existing foreign vendors should be required to submit the applicable Forms
 W-8 as soon as possible.  If a valid W-8 is not received, the Treasury Regulations contain presumption rules for withholding agents to apply in determining the status of payees for withholding purpose. (See FAQ section 5 regarding documentation requires and Treas. Reg. Sec. 1.1441-1(b) (3) concerning the presumption rules).

For newly used foreign vendors, a valid Form W-8 should be required before any payment is made to them to avoid application of the presumption rules or the need to obtain the documentation later. See Q&A-31 below.

4. How to determine the amount to be withheld

Question 16:  If a payment to a foreign person (foreign vendor) is determined to be FDAP and U.S. sourced, how much should be withheld?

Answer 16:  The statutory withholding rate is generally 30%.  This rate should be generally applied to the gross amount of the payment. See Q&A-19 below concerning this rate.

Question 17:  When should the tax is withheld?

Answer 17:  Withholding is required at the time that the payment is made.  A payment is considered to be made when the beneficial owner of the payment realizes income.  There does not need to be a transfer of cash or other property.

Question 18:  When should the tax withheld be deposited?

Answer 18:  The amount of tax that the US withholding agent and is required to withhold determines the frequency of the deposits.  The frequency could be annual, monthly, or quarter-monthly.  Publication 515 details the specific rules for making deposits including the deposit due dates, which forms to use, electronic deposit requirements and penalties for failure to make deposits timely.

Question 19:  Can the statutory rate (30%) be reduced?

Answer 19:  If the foreign vendor is a resident in a country that has a tax treaty with the United States, the rate may be reduced.  Each treaty has specific provisions which determine the reduced withholding rate.  These provisions reduce the withholding rate based on the type of income and the status of the recipient.

Question 20:  Is there a listing of treaties and rates to be applied?

Answer 20:  Publication 515 provides a listing of tax treaties and the withholding tax rates to be applied to various types of income under each treaty. The Publication 515 is located on the IRS website which is www.irs.gov.

Question 21:  How can a foreign vendor certify its foreign status?

Answer 21:  The foreign vendor must provide the withholding agent with form
a properly completed W-8 or Form 8233 (see FAQ section 5 for further information).
 
5.  How should the withholding agent properly document the foreign status or treaty claim of a foreign person

Question 22:  Must we obtain documentation from a foreign person to support its claim of foreign status or treaty eligibility?

Answer 22:  In order to reduce the amount that is required to be withheld on a payment of U.S. sourced FDAP income to a foreign person (foreign vendor), or to exempt such a payment from withholding tax, the withholding agent must have documentation from the foreign vendor to certify its non-U.S. status and, if applicable, its eligibility for the treaty benefits claimed.  Such documentation must be submitted by the foreign vendor in the form of a Form W8-IMY Form W-8 or Form 8233.

Question 23:  Which forms would be most commonly used by foreign vendors?

Answer 23:  Form W-8BEN (Beneficial Owner), Form W-8IMY (Intermediary), Form W-8ECI (Effectively Connected Income) and Form 8233.

Question 24:  When should Form W-8BEN be used by foreign vendors?

Answer 24:  Form W-8BEN should be used by the foreign vendor to certify that it has non-U.S. status. If a treaty claim is made by the vendor Part II of the
W-8BEN must be completed to be eligible for the treaty benefits.

Question 25:  When should Form W-8ECI be used by our foreign vendors?

Answer 25:  Form W-8ECI should be used by a foreign vendor to certify that the payment is income that is effectively connected with a U.S. trade or business.  No withholding is required on such income.  Rather, such income must be on some cases, a W8-BEN can be provided by a U.S. Branch’s income tax.

Question 26:  When should Form 8233 be completed by a foreign vendor?

Answer 26:  If you make a payment to a non-resident alien individual as compensation for personal services performed for you in the United States, that individual may have to provide you with Form 8233 instead of Form W-8.  See   Form 8233 and its instructions for further information.

Question 27:  Are we responsible for the validity of the documentation presented to us by the foreign vendor?
 
Answer 27:  In order to rely on the documentation, it must be valid.  In order to be valid, the documentation must meet the requirements of Treasury Regulation 1.1441 and must be completed in accordance with the applicable Form instructions (see Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP and W-8IMY).

In addition, in order for the documentation to be valid, the US withholding agent or multi-national must not know, or have reason to know, that the information provided on the documentation is unreliable or incorrect.  If the US withholding agent (multi-national) has such knowledge, or if the documentation is invalid for any reason, the withholding agent must apply the presumption rules set forth in Treasury Regulation Section 1.1441, 1.

Question 28:  When should the Form W-8 or Form 8233 be obtained from the foreign vendor?

Answer 28:  In general, the documentation must be in the possession of the withholding agent at the time of payment.

6. How to report NRA payments and withholding

Question 29:  What forms should we use to report payments to foreign persons (foreign vendors) of FDAP income that is U.S. sourced and any amounts withheld on such payments?

Answer 29:  Forms 1042, 1042-S and 1042-T are the forms that a withholding agent (multi-national) must use to report payments to foreign persons of FDAP income that is U.S. sourced and any amounts withheld on such payments.

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons should be submitted to the IRS in order to report the total aggregate NRA payments, withholdings and deposits made by the withholding agent during the applicable year.

Form 1042-S, Foreign Person’s U.S. Source Income subject to Withholding is an information return.  The withholding agent should submit these information returns to the IRS and the payee in order to report the payments and withholdings made during the year that are specific to the payee, the type of income paid and the withholding rate. Form 1042-T, Annual Summary and Transmittal of Forms 1042-S should be used to transmit paper Forms 1042-S to the IRS.

7. What to expect from an IRS audit regarding NRA reporting and withholding responsibilities

Question 30:  If upon audit, it is determined that there has been under reporting and under withholding, will the IRS assess penalties and interest in addition to the under withholding amounts due?

Answer 30:  If deficiencies in reporting, withholding and depositing with regard to NRA payments are found on audit, the IRS will consider all applicable penalties, including, but not limited to the following:

Failure to file (IRC Section 6651)
Failure to pay (IRC Section 6651)
Failure to deposit (IRC Section 6656)
Failure to file information returns (IRC Sections 6721-6723)
Negligence (IRC Section 6662)

In addition, interest will be assessed on the under withholding.

Question 31:  If upon audit, it is determined that there has been under withholding, on account of a failure to document any vendors, as described above what recourse does the withholding agent have in order to reduce the under withholding?

Answer 31:  The withholding agent can obtain certification of foreign status and the treaty claim from the foreign vendor.  This is accomplished by the vendor completing a valid Form W-8.  A valid Form W-8 will allow a reduction in the under withholding from the 30% statutory rate for the type of income paid.

Since the documentation is being obtained after the payment is made, the foreign vendor should provide an additional statement indicating that all facts and elections made on the Form W-8 were true, correct and complete at the time of the payment. Documentation other than this statement might be considered based on the facts of the particular case.

Question 32:  If the under withholding has been “cured” by obtaining a
Form W-8 or other applicable documentation after a payment, according to
Q&A-31 above and such documentation is found sufficient is there any remaining liability to the withholding agent?

Answer 32:  In general, there is no remaining liability for tax, interest and penalties. Exceptions to this apply in case in which the withholding agent is relieved from the tax liability by showing that the underwithholding tax was paid by the payee.  In those cases, the withholding agent may still be liable for interest and applicable penalties.  In other cases, reporting-related penalties might still apply where no underwithholding results on account of the cure, but the filed Form 1042-S reflected incorrect information.

8. The IRS Electronic W-8 Memorandum of Understanding Program

Question 33:  Can a withholding agent collect Forms W-8 electronically?
Question 34:  What is the IRS Electronic W-8 MOU Program?
Question 35:  What is an EW-8 MOU?
Question 36:  Who may obtain an EW-8 MOU?
Question 37:  Are all EW-8 systems eligible for an EW-8 MOU?
Question 38:  Why should a withholding agent obtain an EW-8 MOU?
Question 39:  What is required of an EW-8 system in order to obtain an
EW-8 MOU?
Question 40:  Can an EW-8 system be eligible for an MOU if it pre-populates
information for its users?
Question 41:  How can a withholding agent obtain an EW-8 MOU from IRS?

Question 33:  Can a withholding agent collect Forms W-8 electronically?

Answer 33:  Yes.  Treas. Reg. §1.1441-1(e)(4)(iv) provides that a withholding agent may establish a system for a beneficial owner to electronically furnish a Form W-8 or an acceptable substitute Form W-8.  In addition, a withholding agent may voluntarily choose to participate in the IRS Electronic W-8 Memorandum of Understanding (“EW-8 MOU”) Program.

Question 34:  What is the IRS EW-8 MOU Program?

Answer 34:  The IRS EW-8 MOU Program, a collaborative process between the withholding agent and IRS, is open to all withholding agents.  IRS works with withholding agents to develop electronic systems for beneficial owners to furnish Forms W-8 electronically and validate these forms through an automated process.  The IRS EW-8 MOU Program provides withholding agents with the opportunity to coordinate the development and improvement of their EW-8 systems with IRS and to obtain an EW-8 MOU.  The goal of this process is to provide withholding agents with feedback concerning the sufficiency of their electronic system and provide withholding agents with assurances that their system meets the requirements of Treasury regulations.  

Question 35:  What is an EW-8 MOU?

Answer 35:  An EW-8 MOU is a document that details the extent of the IRS’ approval of a specific EW-8 system.  Various types of electronic systems exist which are used to collect and validate Forms W-8.  Accordingly, each EW-8 MOU is unique because it is tailored to meet the specific needs of withholding agents.  Each EW-8 MOU incorporates as an attachment the written submission (“written submission”) of the withholding agent MOU applicant (“MOU applicant”).  The written submission provides a detailed description of the specific EW-8 system.  Final MOUs are signed by both the IRS and the MOU applicant.  MOUs remain in effect for a term of six years.  The MOU applicant, however, agrees to inform IRS of any significant changes to its system and bears the responsibility of requesting modifications to the MOU when necessary.  Significant changes include, but are not limited to, modifications, deletions, or additions to the questions asked of users or to any validation procedures. Changes to Form W-8 or W-9, Treasury Regulations under chapter 3, and/or issuance of Treasury Regulations under chapter 4 will be considered significant changes requiring MOU modification.  Modifications to existing MOUs required as a result of such changes will be given priority over new MOU applications.

Question 36:  Who may obtain an EW-8 MOU?

Answer 36:  Program developers may assist withholding agents in developing an electronic W-8 system.  However, as of this time, only withholding agents may obtain an EW-8 MOU from IRS.

Question 37:  Are all EW-8 systems eligible for an EW-8 MOU?

Answer 37:  Not all EW-8 systems are eligible for an EW-8 MOU.  Through the EW-8 MOU Program, IRS is attempting to encourage systems that are self-validating and seek to improve data quality.  Accordingly, eligible systems must be in a question and answer interview format rather than a simple fill-in the form format, and must validate the information provided electronically.  Any questions regarding eligibility should be directed to Ashton Ellis, Technical Advisor – Qualified Intermediary, by phone at (212) 298-2283, or by FAX at (212) 298-2106.

Question 38:  Why should a withholding agent obtain an EW-8 MOU?

Answer 38:  Withholding agents may attempt to follow the requirements of Treas. Reg. §1.1441-1(e)(4)(iv) without obtaining an EW-8 MOU.  However, the EW-8 MOU provides a withholding agent with two important benefits.  First, the withholding agent gains the assurance from IRS that it has already reviewed and approved its EW-8 system.  Second, audits of U.S. withholding agents or external audits of qualified intermediaries that have entered into an MOU with IRS have the potential to be much more efficient and streamlined.

Question 39:  What is required of an EW-8 system in order to obtain an EW-8 MOU?

Answer 39:  Below is a non-exhaustive list of the IRS’ expectations with regard to an EW-8 MOU system.  While IRS recognizes that each EW-8 system is unique, to be eligible for an MOU, each EW-8 system must have the following features:

1)  Follows an interview format which takes the user of the system (“user”) through a series of questions and directs the user to appropriate follow-up questions.  

2)  Collects all information required of the corresponding paper form.

3) Properly authenticates and verifies each user.  All electronic systems must verify the identity of each user and ensure that the person accessing the system is the person named on the form or has capacity to sign for the person or entity named on the form.  For joint accounts, the system must authenticate and verify each beneficial owner.  Broker/dealers may use customer identification programs mandated by the Department of Treasury and the Securities Exchange Commission to verify the identity of customers.  Such systems may need enhancements to cover indirect accountholder beneficial owners.

4)  Pre-populates only limited information.  See Question 40 below for more specific information on pre-population.

5)  Documents all occasions of user access that result in the submission, renewal or modification of a form.

6)  Requires that the user confirm that he or she agrees to the electronic submission of tax forms.

7)  Attempts to detect U.S. persons, dual citizens, and those subject to U.S resident taxation in order to determine if a Form W-9 is required.

8)  Asks the following questions of individual beneficial owner users:

Either “What country were you born?” or “Were you born in the United States?”  If the answer indicates U.S. birth, then the follow-up question “Have you formally renounced your U.S. citizenship?” should be asked.  If U.S. citizenship has been formally renounced, then the follow-up question “Are you presently subject to taxation in the United States as a U.S. citizen or resident alien?” should be asked.

9)  Requests U.S. and non-U.S. tax identification numbers.

10)  Requires that under penalties of perjury each user acknowledge separately each applicable certification set forth on the paper Form W-8.

11)  Includes language above the signature line required of substitute Forms W-8.  A description of such required language is outlined in the “Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY”, pages 6-7.

12)  Instructs the user that the electronic signature will be treated as an acceptance of the information provided or confirmed and constitutes a legally binding digital signature.

13)  For entities, may include a broad list of approved signing capacities that comply with IRC §§ 6061-6063 and the associated Treasury regulations.

14)  Where there is more than one account holder of an account, the system must not consider the account documented for U.S. tax purposes until all beneficial owners have individually submitted a valid withholding certificate.

15) Validates all forms by identifying and tracking any discrepancies and inconsistencies in the information provided by the user.  Also, compares information provided by the user with the information available to the withholding agent.  The system should track and report all discrepancies and instances of manual review.

16)  The system must track all significant changes in account information, and obtain new forms W-8 if needed.  Significant changes in account information include, but are not limited to, change in name, country of incorporation, permanent address country or mailing address country.

17) May be used to meet the obligation of payment settlement entities (“PSEs”) required by IRC § 6050W.

18) May be used by several subsidiaries of one parent entity.  An MOU may be created which would cover all the subsidiaries.

19) May include any Forms W-8 and may include Forms W-9 in conjunction with Forms W-8.  For information regarding the electronic submission of Forms W-9, see Announcement 98-27, 1998-1 C.B. 865, and Announcement 2001-91, 2001-2 C.B. 221.

Question 40:  Can an EW-8 system be eligible for an MOU if it pre-populates information for its users?

Answer 40:  EW-8 systems eligible for an MOU (“eligible systems”) can and should, in some instances, pre-populate information for users.  Any pre-populated field, however, must be confirmed by the user.  This confirmation can be accomplished with the use of a check box for each pre-populated field.   Eligible systems should pre-populate information for users according to the following guidelines:

Required Pre-population:  Eligible systems are required to pre-populate TIN or foreign tax identifying numbers if they are available in the withholding agent’s account records.

Permitted Pre-population:  Pre-population is only permitted in Part 1 of the Form W-8, and only for certain fields.  Fields that may be pre-populated are as follows:

1)  Name.
2)  Permanent Residence Address: Pre-population is permitted provided the user selects the country from a drop down menu, and the selection is verified against the withholding agent’s records.  
3)  Mailing Address: Pre-population is permitted provided the user selects the country of the mailing address as with the country of permanent residence. 

All address fields specified in Publication 1187 should be included as separate electronic fields, such as city, state, postal/zip code and country.  Each field must be confirmed by the user.  However, separate address fields may be confirmed in convenient groups.

Prohibited Pre-population: Only fields specifically described above may be pre-populated when an initial Form W-8 is completed.

Pre-population on Renewal:  Pre-population of all fields other than signature is permitted upon renewal provided the user separately confirms all pre-populated fields.

Question 41:  How can a withholding agent obtain an EW-8 MOU from IRS?

Answer 41:  A withholding agent who is developing an EW-8 system and that seeks to obtain an MOU from the IRS should proceed as follows:

1)  Application.  A withholding agent interested in an EW-8 MOU should follow the Instructions for Applying for an Electronic W-8 MOU.

2)  Pre-Submission Conference.  Once an MOU application is submitted, the IRS will determine initially whether the proposed system meets the basic EW-8 MOU requirements.  The IRS EW-8 Team may then request to discuss the withholding agent’s EW-8 system with the withholding agent.  The purpose of such a meeting is for the IRS EW-8 Team to gain a general overview of the withholding agent’s proposed system.  The withholding agent should be prepared to discuss its business, and provide an overview of how its EW-8 system works including authentication, security, and validation procedures.  Screenshots and interview questions also assist in the initial discussions with the IRS.  

3)  Demonstration of System.  Subsequent to the pre-submission conference the IRS EW-8 team may request that the withholding agent provide one or more demonstrations of various aspects of its system.

4) Conferences.  Following any demonstrations of the system, the IRS EW-8 team may request additional conferences with the withholding agent to obtain additional information, and discuss IRS concerns or questions about the proposed system.

5)  Written Submission.  Once IRS has reached a sufficient level of comfort with the withholding agent’s EW-8 system, the withholding agent will be asked to prepare a written submission.  This written submission should describe the withholding agent’s online system in detail as it will be attached and incorporated into the EW-8 MOU.   The written submission should include the following:

a) Withholding agent name and address,
b)  Withholding agent EIN,
c) Overview of the withholding agent’s business including a description of the types of services provided or products sold and the types of payments made,
d) A list of the forms and user types (e.g. individual, corporation, partnership) supported by the system,
e) A detailed description of authentication and security procedures including how passwords are issued,
f) Screenshots of interview questions presented to a user of the system,
g) A description of what specific information is pre-populated by the system,
h) A description of the certification and signature procedures,
i) A detailed description of validation procedures including the following:

1)  Information on how the system validates internal consistency of each form,
2) Information identifying the account holder information (e.g. account master file) to be used for validating data gathered during the EW-8 interview process, and
3) A list of all EW-8 data fields validated and an explanation of which fields are validated against which specific account holder information.

j) A description of what processes (including manual processes) are used to further assist the user in completing a form when it initially fails system validation.  Please categorize the processes by cause of failure.  Indicate what records are kept of such processes and of the ultimate results, and
k) Any other issues raised by IRS during the earlier stages of the MOU process.

Page Last Reviewed or Updated: 12-Dec-2013