EFTA01128901.pdf

Publication 515 Cat. No. 15019L Contents tie Dena -tile Iftit:,ury Withholding What's New Reminders 2 2 Internal Introduction 2 Revenue Service of Tax on Withholding of Tax Withholding Agent 3 3 Nonresident Withholding and Reporting Obligations 3 Aliens and Persons Subject to NRA Withholding Identifying the Payee 4 4 Foreign Foreign Persons Documentation 6 7 Entities Beneficial Owners Foreign Intermediaries and Foreign Flow•Through 7 Entities 8 Standards of Knowledge 11 Presumption Rules 13 Income Subject to NRA For use in 2012 Withholding 14 Source of Income 14 Fixed or Determinable Annual or Periodical Income 15 Withholding on Specific Income 16 Effectively Connected Income 16 Income Not Effectively Connected 16 Pay for Personal Services Performed 23 Artists and Athletes 27 Other Income 28 Foreign Governments and Certain Other Foreign Organizations 28 U.S. Taxpayer Identification Numbers 29 Depositing Withheld Taxes 29 Returns Required 30 Partnership Withholding on Effectively Connected Income 32 U.S. Real Property Interest 34 Tax Treaty Tables 38 Table 1. Withholding Tax Rates on Income Other Than Personal Service Income —For Withholding in 2012 39 Table 2. Compensation for Personal Services Performed in the United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties 44 Table 3. List of Tax Treaties 59 How To Get Tax Help 61 Index 83 Mar 30, 2012 EFTA01128901  Substitute forms. Any substitute forms you Tax Forms and Publications" under 'Information use must comply with the requirements in Publi- About." What's New cation 1179, General Rules and Specifications Although we cannot respond individually to for Substitute Forms 1096. 1098. 1099. 5498, each comment received, we do appreciate your Changes to withholding rate table. Table 1. and Certain Other Information Returns. If they feedback and will consider your comments as Withholding Tax Rates on Income Other Than do not, the forms may be rejected as incorrect we revise our tax products. Personal Services Income, is revised. Columns and the IRS may impose penalties. See Penal- have been deleted or renamed and footnotes Ordering forms and publications. Visit ties. www.irs.gov/formspubs/to download forms and have been added, deleted, or revised for clarity. Filing electronically. If you file Form 1042-S publications, call 1.800.829.3676, or write to the U.S. real property Interest. In most cases, electronically, you will use the Filing Information address below and receive a response within 10 the treatment of a regulated investment com- Returns Electronically (FIRE) system. You get to days after your request is received. pany (RIC) as a qualified investment entity (CIE) the system through the Internet at fire.irs.gov. Internal Revenue Service changes in 2012. The special rules that apply to For files submitted on the FIRE system, it Is 1201 N. Mitsubishi Motorway distributions from a OIE attributable to the gain the responsibility of the filer to verify the results Bloomington, IL 61705-6613 from the sale or exchange of a U.S. real property of the transmission within 5 business days. The interest will continue to apply to certain distribu- IRS will not mail error reports for files that are bad. Tax questions. If you have a tax question, tions from a RIC that are directly or indirectly check the information available on IRS.gov or attributable to distributions received by the RIC Qualified intermediaries. A branch of a fi- call 1-800-829-1040. We cannot answer tax from a real estate investment trust. See Quali- nancial institution may not act as a qualified questions sent to either of the above addresses. fied investment entities under U.S. Real Prop- intermediary in a country that does not have erty Interest. approved know-your-customer rules. See Quali- Useful Items fied intermediary under Foreign intermediaries. You may want to see: Interest-related dividends and short-term capital gain dividends received from mutual Photographs of missing children. The Inter- Publication funds. Beginning January 1, 2012, the ex- nal Revenue Service is a proud partner with the emption from withholding on certain inter- National Center for Missing and Exploited Chil- O 15 (Circular E), Employers Tax Guide est-related dividends and short-term capital gain dren. Photographs of missing children selected O 15-A Employers Supplemental Tax dividends paid by a mutual fund or other regu- by the Center may appear in this publication on Guide lated investment company expires. pages that would otherwise be blank. You can help bring these children home by looking at the O 15-8 Employers Tax Guide to Fringe Portfolio Interest. The rules determining photographs and calling 1.800-THE-LOST Benefits whether interest is considered portfolio interest (1.800.843.5678) if you recognize a child. O 51 (Circular A). Agricultural Employer's change for obligations issued after March 18, Tax Guide 2012. Generally. interest paid on nonregistered (bearer) bonds will not be treated as portfolio O 519 U.S. Tax Guide for Aliens interest. See Portfolio interest. Introduction O 901 U.S. Tax Treaties New codes for payments to artists or ath- This publication is for withholding agents who pay income to foreign persons, including non- Form (and instructions) letes. Use Income Code 42 for payments to an artist or athlete who has not signed a central resident aliens, foreign corporations. foreign O SS-4 Application for Employer withholding agreement. Use Income Code 43 for partnerships, foreign trusts, foreign estates, for- Identification Number eign governments, and international organiza- payments to an artist or athlete who has signed O W-2 Wage and Tax Statement tions. Specifically, it describes the persons a central withholding agreement. responsible for withholding (withholding O W-4 Employee's Withholding Allowance More requests for extensions must be filed agents). the types of income subject to withhold- Certificate electronically. Requests on Form 8809 for an ing, and the information retum and tax return filing obligations of withholding agents. In addi- O W-4P Withholding Certificate for Pension extension of time to file Form 1042-S must be or Annuity Payments made electronically if the request is for more tion to discussing the rules that apply generally than one payer. See Extension to file Form to payments of U.S. source income to foreign CI W-7 Application for IRS Individual 7042-S with the IRS. persons, it also contains sections on the with- Taxpayer Identification Number holding that applies to the disposition of U.S. real property interests and the withholding by O W-8BEN Certificate of Foreign Status of Future developments. The IRS has created partnerships on income effectively connected Beneficial Owner for United States a page on IRS.(pv for information about Publi- Tax Withholding cation 515 at unwiirs.gov/pub515. Information with the active conduct of a U.S. trade or busi- about any future developments affecting Publi- ness. U W-8ECI Certificate of Foreign Person's cation 515 (such as legislation enacted after we Comments and suggestions. We welcome Claim That Income Is Effectively release it) will be posted on that page. your comments about this publication and your Connected With the Conduct of a suggestions for future editions. Trade or Business in the United You can write to us at the following address: States Internal Revenue Service ❑ W-8EXP Certificate of Foreign Reminders Individual Forms and Publications Branch Govemment or Other Foreign SE:W:CAR:MP:T:I Organization for United States Tax Exemption from requirement to withhold for 1111 Constitution Ave. NW. IR-6526 Withholding certain payments to qualified securities Washington, DC 20224 ❑ W-81MY Certificate of Foreign lenders. If you made U.S.-source substitute Intermedary, Foreign Flow-Through dividend payments to qualified securities lend- We respond to many letters by telephone. Entity, or Certain U.S. Branches for ers. and these payments are part of a chain of Therefore, it would be helpful if you would in- United States Tax Withholding substitute dividend payments, you may be ex- clude your daytime phone number, including the ❑ 941 Employers QUARTERLY Federal empt from withholding tax on the payments. See area code, in your correspondence. Tax Return Amounts paid to qualified securities lenders. You can email us at taxformsOirs.gov. Please put 'Publications Comment" on the sub- U 1042 Annual Withholding Tax Return for Electronic deposits. You must make all de- ject line. You can also send us comments from U.S. Source Income of Foreign posits of taxes electronically. www.irs.gov/formspubs/. Select "Comment on Persons Page 2 Publication 515 (2012) EFTA01128902  GI 1042-S Foreign Person's U.S. Source a payment made by a flow-through entity or A U.S. trust is required to withhold on the Income Subject to Withholding nonqualified intermediary that knows, or has amount includible in the gross income of a for- reason to know, that the full amount of NRA eign beneficiary to the extent the trust's distribut- U 1042-T Annual Summary and Transmittal withholding was not done by the person from able net income consists of an amount subject to of Forms 1042-S which it receives a payment is required to do the withholding. To the extent a U.S. trust is required See How To Get Tax Help at the end of this appropriate withholding since it also falls within to distribute an amount subject to withholding publication, for Information about getting publi- the definition of a withholding agent. In addition, but does not actually distribute the amount, it cations and forms. withholding must be done by any qualified inter- must withhold on the foreign beneficiary's allo- mediary, withholding foreign partnership, or cable share at the time the income is required to withholding foreign trust in accordance with the be reported on Form 1042-S. terms of its withholding agreement, discussed Withholding of Tax later. Withholding and In most cases. a foreign person is subject to Liability for tax. As a withholding agent, you Reporting Obligations U.S. tax on its U.S. source income. Most types are personally liable for any tax required to be You are required to report payments subject to of U.S. source income received by a foreign withheld. This liability is independent of the tax liability of the foreign person to whom the pay- NRA withholding on Form 1042-S and to file a person are subject to U.S. tax of 30%. A reduced tax return on Form 1042. (See Returns Re- rate, including exemption, may apply if there is a ment is made. If you fail to withhold and the foreign payee fails to satisfy its U.S. tax liability, quired, later.) An exception from reporting may tax treaty between the foreign person's country then both you and the foreign person are liable apply to individuals who are not required to with- of residence and the United States. The tax is generally withheld (NRA withholding) from the for tax, as well as interest and any applicable hold from a payment and who do not make the payment in the course of their trade or business. payment made to the foreign person. penalties. The term 'NRA withholding" is used in this The applicable tax will be collected only Form 1099 reporting and backup withhold- publication descriptively to refer to withholding once. If the foreign person satisfies its U.S. tax ing. You also may be responsible as a payer required under sections 1441, 1442. and 1443 liability, you are not liable for the tax but remain for reporting on Form 1099 payments made to a of the Internal Revenue Code. In most cases. liable for any interest and penalties for failure to U.S. person. You must withhold 28% (backup NRA withholding describes the withholding re- withhold. withholding rate) from a reportable payment gime that requires withholding on a payment of made to a U.S. person that is subject to Form U.S. source income. Payments to foreign per- Determination of amount to withhold. You 1099 reporting if any of the following apply. sons, including nonresident alien individuals, must withhold on the gross amount subject to foreign entities. and governments. may be sub- NRA withholding. You cannot reduce the gross • The U.S. person has not provided its tax- ject to NRA withholding. amount by any deductions. However, see Schol- payer identification number (TIN) in the arships and Fellowship Grants and Pay for Per- manner required. NRA withholding does not include with- sonal Services Performed, later, for when a A holdingundersectkm 1445 of the Code (see U.S. Real Properly Interest, later) deduction for a personal exemption may be al- lowed. • The IRS notifies you that the TIN furnished by the payee is incorrect. or under section 1446 of the Code (see Partner- If the determination of the source of the in- • There has been a notified payee underre- ship Withholding on Effectively Connected In- porting. come or the amount subject to tax depends on come, later). facts that are not known at the time of payment, • There s been a payee certification fail- A withholding agent (defined next) is the per- you must withhold an amount sufficient to en- son responsible for withholding on payments ure. sure that at least 30% of the amount subse- made to a foreign person. However, a withhold- quently determined to be subject to withholding In most cases, a TIN must be provided by a U.S. ing agent that can reliably associate the pay- is withheld. In no case, however, should you non-exempt recipient on Form W-9. Request for ment with documentation (discussed later) from withhold more than 30% of the total amount Taxpayer Identification Number and Certifica- a U.S. person is not required to withhold. In paid. Or. you may make a reasonable estimate tion. A payer files a tax return on Form 945, addition, a withholding agent may apply a re- of the amount from U.S. sources and put a Annual Return of Withheld Federal Income Tax, duced rate of withholding (including an exemp- corresponding part of the amount due in escrow for backup withholding. tion from withholding) if it can reliably associate until the amount from U.S. sources can be deter- the payment with documentation from a benefi- You may be required to file Form 1099 and, if mined, at which time withholding becomes due. appropriate, backup withhold, even if you do not cial owner that is a foreign person entitled to a reduced rate of withholding. make the payments directly to that U.S. person. When to withhold. Withholding is required at For example, you are required to report income the time you make a payment of an amount paid to a foreign intermediary or flow-through Withholding Agent subject to withholding. A payment is made to a entity that collects for a U.S. person subject to person if that person realizes income, whether Form 1099 reporting. See Identifying the Payee, You are a withholding agent if you are a U.S. or or not there is an actual transfer of cash or other later, for more information. Also see Section S. foreign person that has control. receipt, custody, properly. A payment is considered made to a Special Rules for Reporting Payments Made disposal, or payment of any item of income of a person if it is paid for that person's benefit. For Through Foreign Intermediaries and Foreign foreign person that is subject to withholding. A example, a payment made to a creditor of a withholding agent may be an individual, corpora- Flow-Through Entities on Fonn 1099in the Gen- person in satisfaction of that person's debt to the eral Instructions for Certain Information Retums. tion, partnership, trust. association, nominee creditor is considered made to the person. A (under section 1446 of the Code), or any other payment also is considered made to a person if Foreign persons who provide Form entity, including any foreign intermediary, for- it is made to that person's agent. W-8BEN, Form W-8EC1, or Form eign partnership. or U.S. branch of certain for- A U.S. partnership should withhold when any W-8EXP (or applicable documentary eign banks and insurance companies. You may distributions that include amounts subject to evidence) are exempt from backup withholding be a withholding agent even if there is no re- withholding are made. However, if a foreign and Form 1099 reporting. quirement to withhold from a payment or even if partner's distributive share of income subject to Wages paid to employees. II you are the another person has withheld the required withholding is not actually distributed, the U.S. employer of a nonresident alien, you generally amount from the payment. partnership must withhold on the foreign part- must withhold taxes at graduated rates. See Pay Although several persons may be withhold- ner's distributive share of the income on the for Personal Services Performed, later. ing agents for a single payment, the full tax is earlier of the date that a Schedule K-1 (Form required to be withheld only once. In most 1065) is provided or mailed to the partner or the Effectively connected Income by partner- cases, the U.S. person who pays an amount due date for furnishing that schedule. If the dis- ships. A withholding agent that is a partner- subject to NRA withholding is the person re- tributable amount consists of effectively con- ship (whether U.S. or foreign) is also sponsible for withholding. However, other per- nected income, see Partnership Withholding on responsible for withholding on its income effec- sons may be required to withhold. For example, Effectively Connected Income, later. tively connected with a U.S. trade or business Publication 515 (2012) Page 3 EFTA01128903 that is allocable to foreign partners. See Partner- or you have actual knowledge or reason to know individual: a foreign corporation; and a U.S. citi- ship Withholding on Effectively Connected In- that the foreign entity is a disregarded entity. zen. You make a payment of U.S. source inter- come, later, for more Information. est to the partnership. It gives you a Form W-8IMY with which it associates Forms U.S. real property interest A withholding Flow-Through Entities W-8BEN from the nonresident alien and the agent also may be responsible for withholding if foreign corporation and a Form W-9 from the a foreign person transfers a U.S. real properly The payees of payments (other than Income U.S. citizen. The partnership also gives you a interest to the agent, or if it is a corporation, effectively connected with a U.S. trade or busi- complete withholding statement that enables partnership, trust. or estate that distributes a ness) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through you to associate a part of the interest payment to U.S. real properly interest to a shareholder, part- each partner. ner, or beneficiary that is a foreign person. See entity. This rule applies for purposes of NRA withholding and for Form 1099 reporting and You must treat all three partners as the pay- U.S. Real Property Interest, later. backup withholding. Income that is, or is ees of the interest payment as If the payment deemed to be. effectively connected with the were made directly to them. Report the payment conduct of a U.S. trade or business of a to the nonresident alien and the foreign corpora- tion on Forms 1042-S. Report the payment to Persons Subject to flow-through entity Is treated as paid to the en- My. the U.S. citizen on Form 1099-INT. NRA Withholding All of the following are flow-through entitles. Example 2. A nonwithholding foreign part- • A foreign partnership (other than a with- nership has two partners: a foreign corporation NRA withholding applies only to payments made holding foreign partnership). and a nonwithholding foreign partnership. The to a payee that is a foreign person. It does not apply to payments made to U.S. persons. • A foreign simple or foreign grantor trust second partnership has two partners, both non- Usually, you determine the payee's status as (other than a withholding foreign trust). resident alien individuals. You make a payment a U.S. or foreign person based on the documen- of U.S. source interest to the first partnership. It • A fiscally transparent entity receiving in- gives you a valid Form W-RIMY with which it tation that person provides. See Documenta- come for which treaty benefits are associates a Form W-BBEN from the foreign tion, later. However. if you have received no claimed. See Fiscally transparent entity, corporation and a Form W-8IMY from the sec- documentation or you cannot reliably associate later. ond partnership. In addition, Forms W-8BEN all or a part of a payment with documentation, then you must apply certain presumption rules, from the partners are associated with the Form In most cases, you treat a payee as a W-8IMY from the second partnership. The discussed later. flow-through entity if it provides you with a Form Forms W-8IMY from the partnerships have com- W-8IPAY (see Documentation, later) on which it Identifying the Payee claims such status. You also may be required to plete withholding statements associated with them. Because you can reliably associate a part treat the entity as a flow-through entity under the In most cases, the payee is the person to whom of the interest payment with the Forms W-8BEN presumption rules, discussed later. you make the payment, regardless of whether provided by the foreign corporation and the non- that person is the beneficial owner of the in- You must determine whether the owners or resident alien Individual partners as a result of come. However, there are situations in which beneficiaries of a flow-through entity are U.S. or the withholding statements, you must treat them the payee is a person other than the one to foreign persons, how much of the payment re- as the payees of the Interest. whom you actually make a payment. lates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a re- Example 3. You make a payment of U.S. U.S. agent of foreign person. If you make a duced rate of NRA withholding applies. You source dividends to a withholding foreign part- payment to a U.S. person and you have actual make these determinations based on the docu- nership. The partnership has two partners, both knowledge that the U.S. person is receiving the mentation and other information (contained in a foreign corporations. You can reliably associate payment as an agent of a foreign person, you withholding statement) that is associated with the payment with a valid Form W-8IMY from the must treat the payment as made to the foreign the flow-through entity's Form W-8IMY. If you do partnership on which it represents that It is a person. However, if the U.S. person is a financial not have all of the information that is required to withholding foreign partnership. You must treat institution, you may treat the institution as the reliably associate a payment with a specific the partnership as the payee of the dividends. payee provided you have no reason to believe payee, you must apply the presumption rules. that the institution will not comply with its own See Documentation and Presumption Rules, later. Foreign simple and grantor trust. A trust Is obligation to withhold. foreign unless it meets both of the following If the payment is not subject to NRA with- Withholding foreign partnerships and with- tests. holding (for example, gross proceeds from the holding foreign trusts are not flow-through enti- sales of securities), you must treat the payment ties. • A court within the United States is able to as made to a U.S. person and not as a payment exercise primary supervision over the ad- to a foreign person. You may be required to Foreign partnerships. A foreign partnership ministration of the trust. report the payment on Form 1099 and, if appli- is any partnership that is not organized under • One or more U.S. persons have the au- cable. backup withhold. the laws of any state of the United States or the thority to control all substantial decisions District of Columbia or any partnership that Is of the trust. Disregarded entities. A business entity that treated as foreign under the income tax regula- is not a corporation and that has a single owner tions. II a foreign partnership is not a withholding may be disregarded as an entity separate from In most cases, a foreign simple trust is a foreign partnership, the payees of income are foreign trust that is required to distribute all of Its its owner (a disregarded entity) for federal tax the partners of the partnership, provided the income annually. A foreign grantor trust is a purposes. The payee of a payment made to a partners are not themselves a flow-through en- disregarded entity is the owner of the entity. foreign trust that is treated as a grantor trust My or a foreign intermediary. However, the If the owner of the entity Is a foreign person. under sections 671 through 679 of the Code. payee is the partnership itself it the partnership you must apply NRA withholding unless you can is claiming treaty benefits on the basis that it Is The payees of a payment made to a foreign treat the foreign owner as a beneficial owner not fiscally transparent and that it meets all the simple trust are the beneficiaries of the trust. entitled to a reduced rate of withholding. other requirements for claiming treaty benefits. If The payees of a payment made to a foreign If the owner is a U.S. person, you do not a partner is a foreign flow-through entity or a grantor trust are the owners of the trust. How- apply NRA withholding. However, you may be foreign Intermediary, you apply the payee deter- ever. the payee is the foreign simple or grantor required to report the payment on Form 1099 mination rules to that partner to determine the trust itself if the trust is claiming treaty benefits and, if applicable. backup withhold. You may payees. on the basis that it is not fiscally transparent and assume that a foreign entity is not a disregarded that it meets all the other requirements for claim- entity unless you can reliably associate the pay- Example 1. A nonwithholding foreign part- ing treaty benefits. If the beneficiaries or owners ment with documentation provided by the owner nership has three partners: a nonresident alien are themselves flow-through entities or foreign Page 4 Publica0on 515 (2012) EFTA01128904 intermediaries, you apply the payee determina- B and C are not fiscally transparent under the statement. The account holders are the payees tion rules to that beneficiary or owner to deter- laws of their respective countries of incorpora- of the interest payment. You should report the mine the payees. tion. Country Y requires B to separately take into part of the interest paid to the two foreign per- account on a current basis B's share of the sons on Forms 1042-S and the pan paid to the Example. A foreign simple trust has three income paid to A. and the character and source U.S. person on Form 1099-INT. beneficiaries: a nonresident alien individual, a of the income to B is determined as if the income foreign corporation, and a U.S. citizen. You was realized directly from the source that paid it Qualified Intermediary. A qualified intermedi- make a payment of interest to the foreign trust. It to A. Accordingly, A is fiscally transparent for ary (0I) is any foreign intermediary (or foreign gives you a Form W-81MY with which it associ- that income under the laws of country Y. and B Is branch of a U.S. intermediary) that has entered ates Forms W4BEN from the nonresident alien treated as deriving its share of the U.S. source Into a qualified intermediary withholding agree- and the foreign corporation and a Form W-9 royalty income for purposes of the U.S.-1' in- ment (discussed later) with the IRS. You may from the U.S. citizen. The trust also gives you a come tax treaty. Country Z. on the other hand, treat a Cl as a payee to the extent the O1 as- complete withholding statement that enables treats A as a corporation and does not require C sumes primary withholding responsibility or pri- you to associate a part of the interest payment to take Into account Its share of A's Income on a mary Form 1099 reporting and backup with the forms provided by each beneficiary. current basis whether or not distributed. There- withholding responsibility for a payment. In this You must treat all three beneficiaries as the fore. A is not treated as fiscally transparent situation, the al is required to withhold the tax. payees of the interest payment as if the payment under the laws of country Z. Accordingly. C is You can determine whether a Cl has assumed were made directly to them. Report the payment not treated as deriving its share of the U.S. responsibility from the Form W-8IMY provided to the nonresident alien and the foreign corpora- source royalty income for purposes of the U.S.-Z by the Ol. tion on Forms 1042-S. Report the payment to income tax treaty. A payment to a al to the extent it does not the U.S. citizen on Form 1099-INT. assume primary NRA withholding responsibility Fiscally transparent entity. If a reduced rate is considered made to the person on whose Foreign Intermediaries behalf the 01acts. II a al does not assume Form of withholding under an income tax treaty is claimed, a flow-through entity includes any en- In most cases, if you make payments to a for- 1099 reporting and backup withholding respon- tity in which the interest holder must treat the eign intermediary, the payees are the persons sibility. you must report on Form 1099 and, if entity as fiscally transparent. The determination for whom the foreign intermediary collects the applicable, backup withhold as if you were mak- of whether an entity is fiscally transparent is ing the payment directly to the U.S. person. payment, such as account holders or custom- made on an item of income basis (that is, the ers, not the intermediary itself. This rule applies Branches of financial institutions. determination is made separately for interest, for purposes of NRA withholding and for Form Branches of financial institutions are not permit- dividends, royalties. etc.). The interest holder in 1099 reporting and backup withholding. You ted to operate as els if they are located outside an entity makes the determination by applying may, however, treat a qualified intermediary that of countries having approved the laws of the jurisdiction where the interest has assumed primary withholding responsibility 'know-your-customer' (KYC) rules. The coun- holder is organized, incorporated, or otherwise for a payment as the payee, and you are not tries with approved KYC rules are listed on considered a resident. An entity is considered to required to withhold. IRS.gov. be fiscally transparent for the income to the An intermediary is a custodian, broker, nomi- extent the laws of that jurisdiction require the &withholding agreement Foreign finan- nee. or any other person that acts as an agent cial institutions and foreign branches of U.S. interest holder to separately take into account for another person. A foreign intermediary is on a current basis the interest holder's share of financial institutions can enter into an agreement either a qualified intermediary or a nonqualified the income, whether or not distrbuted to the with the IRS to be a qualified intermediary. intermediary. In most cases, you determine interest holder, and the character and source of whether an entity is a qualified intermediary or a A al is entitled to certain simplified withhold- the income to the interest holder are determined nonqualdied intermediary based on the repre- ing and reporting rules. In general, there are as if the income was realized directly from the sentations the intermediary makes on Form three major areas whereby intermediaries with source that paid it to the entity. Subject to the W-8IMY.