§1471 Withholdable Payments to Foreign Financial Institutions

Summary

Withhold 30% of any withholdable payment to a foreign bank or other foreign financial firm that does not follow the rules. To avoid the 30% tax, a foreign financial institution must have an agreement with the U.S. Treasury to collect the facts needed to find U.S. accounts, use required ID and checking steps, report each U.S. account every year (including name, address, taxpayer ID, account number, balance, and, unless the Treasury says otherwise, gross receipts and withdrawals), withhold 30% on passthru payments to account holders who refuse to cooperate or to nonparticipating foreign firms, answer additional Treasury information requests, and try to get legal waivers from account holders when foreign law blocks reporting (and close the account if no waiver is obtained). The Treasury can end the agreement if the firm breaks these rules. Some foreign firms can be treated as meeting the rules if they show they do not hold U.S. accounts or if they are in a group the Treasury says is exempt. A compliant firm can instead choose to have the 30% tax apply to payments made to it that are tied to noncooperative or nonparticipating accounts, but then it must tell the payer and waive treaty claims. Key terms: United States account = an account held by U.S. persons or U.S.-owned foreign entities; financial account = a deposit, custodial account, or equity/debt interest; United States‑owned foreign entity = a foreign entity with substantial U.S. owners; foreign financial institution = a financial firm that is a foreign entity; financial institution = an entity that takes deposits, holds assets for others, or mainly invests/trades; recalcitrant account holder = someone who refuses to give required info or a waiver; passthru payment = a payment that comes from a withholdable payment. The rules also apply to related foreign institutions in the same expanded group (more than 50% ownership). No 30% withholding applies when the payment’s owner is a foreign government, international organization, foreign central bank, or another low‑risk class the Treasury identifies.