§1471 Withholdable payments to foreign financial institutions

Summary

Withhold 30% from any payment to a foreign bank or financial firm that does not follow the rules. To avoid that withholding, a foreign financial institution must sign an agreement with the Treasury Secretary to find which accounts are U.S. accounts, use required checks to identify those accounts, report each U.S. account every year (including name, address, taxpayer ID, account number, balance and, unless the Secretary says otherwise, gross receipts and withdrawals), withhold 30% on certain “passthru” payments tied to noncompliant accounts, answer extra information requests, and try to get waivers when foreign law blocks reporting or close the account if no waiver is given. The Secretary can also treat a firm as compliant if it proves it has no U.S. accounts or if the firm is in a class the Secretary says does not need the rules. Some firms may choose a different withholding approach but must tell the payer and waive treaty claims about amounts withheld. Key terms in plain words: a United States account is one held by a specified U.S. person or a foreign company with substantial U.S. owners. Small personal deposit accounts are excluded if each holder’s total at the same firm is $50,000 or less, unless the firm opts out. A financial account means deposit or custodial accounts and most ownership interests that are not regularly traded. A United States owned foreign entity has one or more substantial U.S. owners. A recalcitrant account holder is someone who refuses to give required information or a waiver. A passthru payment is any payment that comes from or is tied to a withholdable payment. Payments to foreign governments, international organizations, foreign central banks, and other low-risk classes named by the Secretary are exempt from the 30% rule.