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IRS Requires Banks To Collect Tax Identification Numbers From Non-Resident Aliens

Revised Guidelines Related to Obtaining and Reporting Taxpayer Identification Numbers. Notice 2017-46.  

For the bankers that read Leasing News, this press release may be of some interest. The Internal Revenue Service has promulgated new rules that require banks and other financial institutions to collect Tax Identification Numbers (TINs) and date of birth from non-resident aliens. Alternatively, the alien will be subject to a 30% withholding requirement. Banks will have to a revise their Form W-8 with the foreign TIN and DOB. At year end, deposit income is reportable by the bank on Form 1042-S. This goes into effect in two months: January, 2018. 

The new rule has some exceptions:

• In Lieu of a TIN, a Reasonable Explanation Why It Is Not Available. The guidelines don’t elaborate on this, but presumably it’s something greater than the dog ate my TIN. There is no sanction for failing to rely upon an explanation, whether reasonable for not. Essentially, the banks and escrows can do whatever they want to do.

• No TIN Needed for Countries Which Have No TINs. The IRS identified three countries which presently do not use a numbering system for tax identification: Bermuda, British Virgin Islands, and Cayman Islands. Is it a coincidence that these countries are the most famous tax dodger havens? 

The bottom line to this new rule is the IRS is clamping down on non-resident aliens and deposit income. This probably includes escrows where a non-resident alien is receiving disbursements as well. 

IRS Tax Notice  (20 pages)

Tom McCurnin is a partner at Barton, Klugman & Oetting in Los Angeles, California.

Tom McCurnin
Barton, Klugman & Oetting
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.