The IRS issued temporary regulations in January 2017 with new requirements for filling out IRS Form W-8BEN for your foreign members. These temporary regulations required credit unions to obtain foreign taxpayer identification numbers (foreign TINs) or a reasonable explanation for the absence of the foreign TIN, as well as the account holder’s date of birth (DOB). These temporary regulations expired at the end of 2019.
On January 2, 2020, the IRS issued
Final Regulations
, along with the removal of the 2017 temporary rules. Credit unions will find that the final regulations incorporate most of the temporary rules and guidance that they have been following over the past few years.
Foreign TIN:
A Form W-8BEN must contain the account holder’s foreign TIN. For payments made on or
after January 2, 2020
a credit union may consider a Form W-8BEN obtained
before January 1, 2018
as valid if the credit union obtains the account holder’s foreign TIN on a written statement or if the credit union otherwise has the account holder’s foreign TIN in their files (provided there is no change in circumstance that requires a revised W-8BEN and it hasn’t expired).
The IRS doesn’t believe that obtaining a foreign TIN via a verbal statement provides adequate assurance of accuracy. While credit unions have been allowed to rely on foreign TINs in their files for W-8BENs signed before January 1, 2018 without investigating whether they were obtained verbally, the IRS will not allow this going forward. Credit unions must obtain foreign TINs in writing and retain that documentation.
If an account holder does not have a foreign TIN, the account holder is required to provide a reasonable explanation for its absence. The final rule describes a “reasonable explanation” as one that meets the description in the Instructions for the Form W-8BEN. Furthermore, the rule states that if the foreign member provides an explanation other than as described in the Instructions, the credit union must determine whether the explanation is reasonable. A reasonable explanation may be provided on the W-8BEN or on a separate attached statement associated with the form. A credit union may rely on a reasonable explanation as described in the Instructions to the Form W-8BEN, unless you have actual knowledge that the account holder has a foreign TIN.
The current W-8BEN Instructions (Revised 2017) describe a “reasonable explanation” as:
If you are providing this form to document a financial account described above but you do not enter a TIN on line 6, and you are not a resident of a U.S. possession, you must provide the withholding agent with an explanation for why you have not been issued a TIN. For this purpose, an explanation is a statement that you are not legally required to obtain a TIN in your jurisdiction of tax residence. The explanation may be written on line 6, in the margins of the form, or on a separate attached statement associated with the form. If you are writing the explanation on line 6, you may shorten it to “not legally required.” Do not write “not applicable.”
Date of Birth:
A W-8BEN must include the account holder’s DOB. A credit union may rely on a DOB provided on the W-8BEN unless you know or have reason to know that the DOB is incorrect. A W-8BEN that does not contain the account holder’s DOB will not be invalid if the credit union has the account holder’s DOB in its files.
Source: CUNA
