SECTION 2. BACKGROUND

.01 Withholding and Reporting under Chapter 4 of the Code . On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010, Pub. L. 111– 147, added chapter 4 of Subtitle A (chapter 4 or FATCA) of the Code, comprised of sections 1471 through 1474. On January 28, 2013, the Treasury Department and the IRS published final regulations (TD 9610) under chapter 4 (78 FR 5874), and, on September 10, 2013, published corrections to those final regulations (78 FR 55202) (collectively, the 2013 chapter 4 regulations). On March 6, 2014, the Treasury Department and the IRS pub

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lished temporary regulations (TD 9657) providing clarifications and modifications to the 2013 final regulations, and, on July 1, 2014, and November 18, 2014, published corrections to those temporary regulations (79 FR 37175 and 78 FR 68619, respectively) (collectively, the 2014 chapter 4 regulations). On January 6, 2017, the Treasury Department and the IRS published regulations finalizing the 2014 chapter 4 regulations with certain modifications (final chapter 4 regulations) and published temporary regulations providing additional rules under chapter 4 (temporary chapter 4 regulations) (TD 9809, 82 FR 2124). Section 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to a foreign financial institution (FFI), unless the FFI agrees to and complies with the terms of an FFI agreement (published in Revenue Procedure 2017–16, 2017–03 I.R.B. 501 (as updated or superseded by any subsequent revenue procedure)) to satisfy the obligations specified in section 1471(b) (a participating FFI), is deemed to meet these requirements under section 1471(b) (a deemedcompliant FFI), or is treated as an exempt beneficial owner under § 1.1471–6. Section 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to a non-financial foreign entity (NFFE), other than an excepted NFFE, unless such entity provides information regarding its substantial U.S. owners or certifies that it does not have any such owners.

.02 Withholding and Reporting under Chapter 3 of the Code . Under sections 1441 and 1442, a withholding agent is required to deduct and withhold a tax equal to 30 percent on any payment of U.S. source fixed or determinable, annual or periodical (FDAP) income that is an amount subject to withholding (as defined in § 1.1441–2(a)) made to a foreign person. A reduced rate of withholding may apply under the Code (for example, section 1443) or an income tax treaty. Generally, a withholding agent must report the payments on Forms 1042–S, regardless of whether withholding is required. See § 1.1461–1(c).

.03 Coordination of Withholding and Reporting Requirements under Chapters 3 and 4 of the Code . On March 6, 2014, the Treasury Department and the IRS published temporary regulations (TD 9658, 79 FR 12726) providing rules under chapters 3, 61, and section 3406 of the Code to coordinate with the requirements provided in the 2013 and 2014 chapter 4 regulations, and, on July 1, 2014, published corrections to those temporary regulations (79 FR 37181) (collectively, the temporary coordination regulations). On January 6, 2017, the Treasury Department and the IRS published regulations finalizing certain temporary regulations under chapters 3 and 61 and sections 3406 and 6402 (final chapter 3 regulations) and published temporary regulations providing additional rules under chapter 3 (temporary chapter 3 regulations) (TD 9808, 82 FR 2046). With respect to a payment that is subject to withholding under chapter 4, a withholding agent may credit any tax withheld under chapter 4 against its liability for any tax due with respect to the payment under chapter 3. A withholding agent is required to use a single Form 1042–S to report information required under both chapters 3 and 4 with respect to a payment subject to withholding under both chapters 3 and 4 for which a credit against the beneficial owner’s chapter 3 liability, if any, may be claimed. With respect to a withholdable payment that is not subject to withholding under chapter 4 and that is an amount subject to withholding under chapter 3, a withholding agent is also required to report the applicable chapter 4 exemption code for the payment and the recipient’s chapter 4 status.

.04 Reporting Regarding Certain U.S. Persons by Foreign Partnerships and Foreign Trusts. If a foreign partnership has U.S. partners, the foreign partnership is generally required to file Form 1065 with a Schedule K–1 to report each U.S. partner. See § 1.6031(a)–1. If a U.S. person is treated as the owner of any portion of a foreign trust under the grantor trust rules (sections 671 through 679 of the Code), the foreign trust is required to file Form 3520–A, “Annual Information Return of a Foreign Trust with a U.S. Owner,” and to provide statements to each U.S. owner, as well as to each U.S. person

who is not an owner and receives a distribution. See section 6048(b); see also the Instructions for Form 3520–A.