A draft update recently released by the IRS would require certain taxpayers to disclose on their Form W-9 any “foreign partners, owners, or beneficiaries.” Though the change – once the draft form is approved – would likely not be effective until October, taxpayers should review their current structures now to be prepared to revise their Form W-9 if needed. Read on for details.
A person required to file an information return with the IRS (“requester”) must obtain the taxpayer identification number of any person reported on the information return. IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” or a substantially similar form, is used to collect this information, along with certain other information such as the person’s tax classification. A person who is requested to furnish this information and fails to do so, or who provides incorrect information, is subject to penalties and potentially to backup withholding. Foreign persons would use Form W-8 series, not W-9, to provide this information.
Updated draft of Form W-9: New line 3b
On July 26, 2023, the IRS released an updated draft of Form W-9 with a revision date of October 2023. The draft includes new line 3b, whereby a person filling out the form as a partnership, trust, or estate – to provide to a requester that is also a partnership, trust, or estate – must disclose if they have any “foreign partners, owners, or beneficiaries.” This new information will allow flow-through entities to determine whether there are any indirect foreign owners or beneficiaries, helping to ensure they have the information needed to comply with applicable reporting requirements, such as Schedules K-2 and K-3 (Form 1065).
What does CohnReznick think?
This addition to Form W-9 will help facilitate compliance for tiered partnerships with ultimate foreign partners. Once the draft form is officially approved, U.S. partnerships will need to consider procedures to identify the situations when line 3b is relevant, as they will be required to update Form W-9 when necessary. In addition, upon final approval of this change to Form W-9, any substitute Forms W-9 would need to incorporate this additional information as well.
Flow-through entities should consider their current ownership and expect to update their Form W-9 as appropriate going forward.
Contact your tax advisor for questions or assistance in preparing for this potential change.
Subject matter expertise
Christina H. Lee
CPA, Partner, Practice Leader, International Tax Services
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