SECTION 1. PURPOSE

.01 Proposed Guidance to Simplify Partnership and Trust Withholding and Reporting Obligations . This notice contains proposed guidance for entering into a withholding foreign partnership (WP) or withholding foreign trust (WT) agreement with the Internal Revenue Service (IRS). Similar to the qualified intermediary (QI) withholding agreement, ¹ the proposed WP and WT agreements are designed to simplify withholding and reporting obligations for payments of income made to partners of a WP and beneficiaries or owners of a WT. The IRS recognizes that foreign partnerships and trusts differ significantly from each other, as well as from foreign financial institutions that receive amounts subject to withholding as intermediaries for account holders. These proposed agreements attempt to address the unique features of partnerships and trusts by adopting tailored procedures for documentation, reporting and audit that facilitate compliance and reduce administrative and audit

1 See Rev. Proc. 2000–12, 2000–1 C.B. 387.

cost for the WP or WT. As discussed further in Section 7 of this notice, Treasury and the IRS request comments on these proposed agreements. Treasury and the IRS will review any comments received and intend thereafter to publish a revenue procedure containing the final text of the WP and WT agreements.

Under applicable Treasury regulations, a foreign partnership or foreign simple or grantor trust that is not a WP or WT is required to provide each withholding agent from whom it receives an amount subject to withholding under sections 1441 and 1442 of the Internal Revenue Code (Code) and the regulations thereunder with a Form W-8IMY, along with documentation from each of its partners, beneficiaries, or owners, and a withholding statement allocating the amount attributable to each partner, beneficiary, or owner. The withholding agent is required to withhold tax from payments to the partnership or trust and to report on Forms 1042-S and 1099 payments to, and tax withheld from, each partner, beneficiary, or owner.

Under the provisions of the WP and WT agreements, a WP or WT is permitted to provide the withholding agent with a Form W-8IMY as a WP or WT without attached documentation from partners, beneficiaries, or owners. The WP or WT receives payments from the withholding agent in gross and withholds and deposits tax, if any, based on the Forms W-8 or W-9 that it receives from its partners, beneficiaries, or owners. The WP or WT reports payments to, and tax withheld from, its direct foreign partners, beneficiaries or owners on Form 1042-S on an individual basis or, by election, on a pooled basis. Thus, a WP or WT is relieved of the requirement to disclose to a withholding agent any documentation and payment information for partners, beneficiaries or owners. A withholding agent is relieved of the responsibility for collecting documentation, withholding and reporting payment information for partners, beneficiaries and owners of a WP or WT.

.02 Key Provisions . The following key provisions, explained in greater detail in Section 4.02, are intended to work

2002–24 I.R.B. 1153 June 17, 2002

and grantor trusts, including those that meet the criteria set forth in Notice 2001–4, may choose to enter a WT agreement when the WT agreement is finalized.