IRS Form W-9 is used by a person who files information returns with the IRS to report transactions. A U.S. Person (including a resident alien) provides their current Taxpayer Identification Number to the person requesting it (“The Requestor”).
The Requestor uses the U.S. Person’s Taxpayer Identification Number (“TIN”) to report:
1. Income Paid (to the U.S. Person)
2. Real Estate Transactions
3. Mortgage Paid (by the U.S. Person)
4. Debt Cancellation
5. Acquisition or Abandonment of Secured Property
6. IRA Contributions (by the U.S. Person)
Form W-9 is used by a U.S. Person to certify:
1. Their Taxpayer Identification Number
2. They are not subject to “Back-up withholding”
3. If applicable, their allocable share of U.S. partnership income (U.S. trade or business) not subject to withholding tax, on foreign partners’ share of “effectively connected income”.
Form W-9 is used to claim exemption from back-up withholding for a U.S. Exempt Payee (who is exempt from tax under a U.S. Tax Treaty).
For Federal Tax purposes, a U.S. Person is defined as:
1. An Individual who is a U.S. Citizen or U.S. Resident Alien
2. A U.S. Partnership, Corporation, Company or Association
3. A U.S. Estate
4. A Domestic Trust (defined under Treas. Reg. Section 301.7701-7)
Payors making payments to U.S. Payees, under certain conditions must withhold and pay 28% of such payments to the IRS, known as “back-up withholding”.
Payments that may be subject to back-up withholding include:
2. Tax-exempt Interest
4. Broker and Barter Exchange Transactions
7. Non-employee Pay
8. Real Estate transactions are not subject to back-up withholding
A U.S. Person is not subject to back-up withholding on payments received if they:
1. Give the Requestor their correct TIN
2. Make the proper certifications
3. Report all taxable dividends and interest on their tax return
Payments received by a U.S. Payee will be subject to back-up withholding if:
1. They do not give their TIN to the Requestor
2. They do not certify the TIN
3. The IRS tells the Requestor the U.S. Payee furnished an incorrect TIN
4. The IRS tells the Requestor the U.S. Payee is subject to back-up withholding because they did not disclose all reportable interest and dividends on their tax return
5. The U.S. Payee did not certify to the Requestor they are not subject to back-up withholding (for reportable interest and dividends for accounts opened after 1983)
Foreign Person (Non-Resident Alien/Foreign Entities)
A Foreign Person gives the Requestor the appropriate Form W-8 (not Form W-9) to confirm they are not subject to back-up withholding.
Non-Resident Alien who becomes a Resident Alien
Generally, only a Non-Resident Alien may use a tax treaty to reduce or eliminate U.S. Tax on income. Most treaties contain a “savings clause” which may specify exceptions which permit an exemption from tax (for certain types of income), even after the payee has become a U.S. Resident Alien (for tax purposes).
A U.S. Resident Alien who claims an exemption from tax (under a Tax Treaty Savings Clause) must attach a Form W-9 statement which specifies:
1. The Treaty Country (under which the Non-Resident Alien claimed a tax exemption)
2. The Treaty Article addressing the income received
3. The Tax Treaty Article which contains the Savings Clause (and its exceptions)
4. The type and amount of income exempt from tax
5. Sufficient facts to justify the tax exemption under the Treaty
Special Rules for Partnerships
U.S. Partnerships (that conduct a U.S. trade or business) are generally required to pay a withholding tax on any foreign partners’ share of U.S. partnership income. If a Form W-9 is not received the Partnership is required to presume that a Partner is a Foreign Person, and pay the withholding tax.
The following U.S. Persons are required to give the Form W-9 to the Partnership to establish their U.S. tax status (and avoid withholding on their allocable shares of partnership net income).
1. The U.S. Owner of a Disregarded Entity (not the Entity)
2. The U.S. Grantor of a Grantor Trust (not the Trust)
3. The U.S. Trust (other than a Grantor Trust) and not the Trust beneficiaries
1. Failure to Furnish Correct TIN to Requestor
$50 penalty for each such failure (unless the failure is due to reasonable cause and not willful neglect)
2. Civil Penalty for False Information with Respect to Withholding
$500 penalty (if no reasonable basis for false statement)
3. Criminal Penalty for Falsifying Information
Willful falsifying certifications subject to fines and/or imprisonment
4. Misuse of TIN’s
If the Requestor discloses or uses TIN’s in violation of Federal law, the Requestor may be subject to civil and criminal penalties.