Caution should be taken when payments are made to a U.S. agent of a foreign person. Withholding agents who have knowledge that the payee is an agent of a foreign person must treat the payment as made to a foreign person. This might happen when a foreign person to whom you owe money asks you to write the check or send the payment to someone else. An exception is made for the new payee who is a "financial institution".
Treasury Regulations 1.1441-1(b)(2)(ii) and 1.1471-3(a)(3)(iii) both require that a withholding agent making a payment to a U.S. person, when the withholding agent has actual knowledge that the U.S. payee receives the payment at the request or direction of a foreign person must treat the payment as if it was being made to the foreign person, unless the U.S. person is a financial institution such as a bank, and the withholding agent has no reason to believe that the financial institution will not comply with its obligation to withhold. This financial institution exception will apply if the “check” is made out to a U.S. bank, but not if the check is made out to a someone other than a “bank” or perhaps merely transferred to an account at a U.S. bank.
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