IRS Clarifies Form W-9 Instructions

The IRS on its website has posted an item regarding the clarification of instructions for Lines 3, 4, and 5 of Form W-9, Request for Taxpayer Identification Number and Certification.

Purpose of Form W-9

Persons making certain payments must under certain conditions withhold and pay to the IRS “backup withholding” on such payments.

These payments that may be subject to backup withholding include nonemployee compensation, interest, dividends, rents, and royalties, among others.

A U.S. person (including a resident alien) will use The Form W-9 if they are receiving such payments to provide their correct taxpayer identification number (TIN) (for individuals – social security number; for other entities – employer identification number) to the person (i.e., payer) requesting it and, when applicable, to:

• Certify that the TIN you are giving is correct (or you are waiting for a number to be issued),
• Certify that you are not subject to backup withholding,
• Claim exemption from backup withholding if you are a U.S. exempt payee, or
• Certify that the FATCA (Foreign Account Tax Compliance Act) code(s) entered on the form (if any) indicating that you are exempt from FATCA reporting, is correct.

Some Clarifications

Line 3. The Note under the “limited liability company” box on page 1 is clarified to reflect that an LLC that is disregarded as an entity separate from its owner under Treas. Reg. §301.7701-3 (except for employment and excise tax), should not check the “limited liability company” box unless the owner of the LLC (required to be identified on the “Name” line) is another LLC that is not disregarded for U.S. federal tax purposes.
In addition, the “Limited Liability Company (LLC)” paragraph on page 3 of the Specific Instructions is clarified as follows:

The “individual/sole proprietor or single-member LLC” box is the appropriate box to check for:
• An individual,
• A sole proprietorship, or
• A single-member limited liability company (LLC) owned by an individual and disregarded for U.S. federal tax purposes.

The “limited liability company” box is the appropriate box to check for:

• An LLC treated as a partnership for U.S. federal tax purposes (check the box and enter“P”in the space provided)

• An LLC that has filed Form 8832 or 2553 to be taxed as a corporation (check the box and in the space provided enter “C” for C corporation or “S” for S corporation)

• An LLC that is disregarded as an entity separate from its owner but the owner is another LLC that is not disregarded for U.S. federal tax purposes (check the box and enter appropriate tax classification, i.e., “P” for partnership, “C” for C corporation, or “S” for S corporation).

Line 4. The directions in the “Exempt payee code” space on page 1 are expanded to clarify that an entity may provide a number or letter code in the spaces in Line 4 to indicate the reason for an exemption. Individuals do not fill in Line 4.

In addition, the Specific Instructions on page 3 are clarified as follows:

• The “Exempt payee code” space is for an entity that is a U.S. exempt payee.

• The “Exemption from FATCA reporting code” space is for a payee that is exempt from reporting required by the Foreign Account Tax Compliance Act (FATCA). This latter code only applies if Form W-9 is requested for accounts maintained outside the United States. If Form W-9 is requested for an account maintained in the United States, the requester may pre-fill the FATCA exemption space with “Not Applicable,” or any similar indication such as “N/A.”

Line 5. The Specific Instructions on page 3 are expanded to clarify that the address provided in Line 5 may be the address to which the requester of Form W-9 will mail your information return. However, if the requester has a different current mailing address on file for you, the different address may be used to mail your information return.

Information for this blog was found on the American Payroll Association website.