IRS releases draft W-9 Form

IRS releases draft W-9 Form

On July 26, a draft of Form W-9 with a revision date listed as October 2023 was published on the Internal Revenue Service (IRS)  website. The Form W-9 is a critical document used by financial institutions and other entities to request U.S. taxpayer identification information from their clients, such as individuals, partnerships, corporations, and others. This form serves a crucial role in the tax reporting process, ensuring compliance with the IRS) regulations.

The key updates to the draft W-9 form relate to a new tax classification election for flow-through entities to indicate that it has direct or indirect foreign partners, owners, or beneficiaries. The impacted regime would be the Foreign Account Tax Compliance Act (FATCA), therefore affecting Financial Institutions with 1099 reporting obligations.

Summary of proposed W-9 Form Changes

Changes from revision of 2018 to the Draft of 2023 include:

• The notable change in the October 2023 revision of Form W-9 is the addition of a new line 3b. Flow-through entities, which pass their income through to their owners or partners for tax purposes, are now required to complete this line if they have direct or indirect foreign partners, owners, or beneficiaries.
• The inclusion of this new line is intended to identify the presence of indirect foreign connections within flow-through entities more explicitly.
• The IRS recognizes that certain partnerships with indirect foreign partners may have additional reporting requirements, such as completing Schedules K-2 and K-3. By mandating the inclusion of line 3b, the IRS aims to provide these entities with a clear means of indicating the status of their indirect foreign partners, owners, or beneficiaries.

How Changes Will Impact Financial Institutions

Financial institutions must be prepared for these changes and update their processes accordingly. The new line 3b will necessitate an added layer of scrutiny when processing Form W-9 submissions from flow-through entities. Institutions will need to ensure that these entities complete line 3b accurately and provide the necessary information about their indirect foreign partners, owners, or beneficiaries.

The October 2023 revision of Form W-9 (Form W-9 (Rev. October 2023) (irs.gov)), once marked Final, will allow for a transition period where the validation of the prior revision (2018 version) will be accepted for up to six months. After this transition period, only the 2023 version will be acceptable. The earliest to take effect would be October 2023,  meaning latest date to adopt would be May 1, 2024.

Staying informed and monitoring regulatory changes is crucial to ensuring compliance with the evolving laws, regulations, and guidelines that govern the financial industry. The TAINA Platform continues to evolve to ensure we provide our clients with guaranteed reliable performance and robust compliance. With the help of Big 4, the TAINA platform is being updated to align with the recent changes to the 1042-S instruction changes, Drafted W-8EXP 2023 revision and Drafted W-9 2023 revision.

If you have any questions about the W-9 updates and would like to have a chat about them please reach out to us.

If you would like to see how the TAINA FATCA, CRS and QI Compliance Platform can add value to your business, request a demo today.