Notice 2001-11

Corporations and partnerships that are organized under the laws of a possession of the United States are generally treated as foreign persons for purposes of section 1441 and the regulations thereunder (relating to the withholding of tax on payments to foreign persons). See section 881(b)(1) for exceptions to this general rule. Financial institutions organized under the laws of a U.S. possession (“possessions financial institutions”) have noted that, to the extent they act as intermediaries (that is, as agents for others), the regulations under section 1441, as in effect on January 1, 2001 (the “new withholding regulations”), will require them to function as nonqualified intermediaries. Payments of U.S. source income made to nonqualified intermediaries are generally subject to 30-percent withholding (or 31percent withholding in the case of deposit interest and certain payments on shortterm obligations) unless the nonqualified intermediary provides documentation from, and other information relating to, customers on whose behalf the nonqualified intermediary acts that supports a

reduced rate of withholding. See section 1.1441-1(b)(1) and 1.1441-1(e)(3)(iii) and (iv). Possessions financial institutions have commented that the requirement to provide a withholding agent with information relating to the possessions financial institution’s customers should not apply to them because they are subject to all of the withholding and information reporting requirements that apply to U.S. withholding agents under Chapters 3 and 61 and section 3406 of the Internal Revenue Code and because they are subject to direct audit supervision by the Internal Revenue Service.

Treasury and IRS agree that, for the reasons described above, possessions financial institutions should not be required to act as nonqualified intermediaries under the new withholding regulations. Accordingly, until further notice, any possessions financial institution will be treated as a U.S. branch under section 1.1441-1(b)(2)(iv) of the new withholding regulations. As such, it may agree with a withholding agent from which it is receiving payments to be treated as a U.S. person. See section 1.1441-1(b)(2)(iv)(A) and (E). Under the general rule of section 1.1441-1(b)(1), payments of U.S. source income to a possessions financial institution that agrees to be treated as a U.S. person will be treated as made to a U.S. payee and therefore not subject to with

January 29, 2001 464 2001–5 I.R.B.

Ak Chin Indian Community of the

Maricopa (Ak Chin) Indian Reservation, Arizona

Alabama-Coushatta Tribes of Texas

Alabama-Quassarte Tribal Town,

Oklahoma

Alturas Indian Rancheria, California

Apache Tribe of Oklahoma

Arapahoe Tribe of the Wind River

Reservation, Wyoming

Aroostook Band of Micmac Indians of

Maine

Assiniboine and Sioux Tribes of the Fort

Peck Indian Reservation, Montana

Augustine Band of Cahuilla Mission

Indians of the Augustine Reservation, California

Bad River Band of the Lake Superior

Tribe of Chippewa Indians of the Bad River Reservation, Wisconsin

Barona Group of Capitan Grande Band of

Mission Indians of the Barona Reservation, California

Bay Mills Indian Community of the Sault

Ste. Marie Band of Chippewa Indians, Bay Mills Reservation, Michigan

Bear River Band of the Rohnerville

Rancheria, California

Berry Creek Rancheria of Maidu Indians

of California

Big Lagoon Rancheria, California

Big Pine Band of Owens Valley Paiute

Shoshone Indians of the Big Pine Reservation, California

Big Sandy Rancheria of Mono Indians of

California

Big Valley Band of Pomo Indians of the

Big Valley Rancheria, California

Blackfeet Tribe of the Blackfeet Indian

Reservation of Montana

Blue Lake Rancheria, California

Bridgeport Paiute Indian Colony of

California

Buena Vista Rancheria of Me-Wuk

Indians of California

Burns Paiute Tribe of the Burns Paiute

Indian Colony of Oregon

26 CFR 601.201: Rulings and determination letters. (Also sections 103(c), 105(e), 117(b)(2)(A), 164, 170, 403(b)(1)(A)(ii), 454(b)(2), 511(a)(2)(B), 2055, 2106(a)(2), 2522, 4041(g), 4216, 4253(i), 4483(a), 4911, 4940(c), 4941(d), 4942(f), 4945(f), 4946(c).)