M E M O R A N D U M
June 18, 2009
FROM: Burt, Staples and Maner, LLP
Signals Preference for Interview-Style E-W8 Applications for Purposes of
The IRS recently announced its preference for a “Turbo Tax”
interview-style electronic Form W-8 (“E-W8”) from Withholding Agents
(“WA”) looking to secure a Memorandum of Understanding (“MOU”) for
their E-W8 applications.
Last week, at the Executive
Enterprise Institute 21st Annual International Tax Withholding and
Information Reporting conference in New York City, IRS representatives said they
favored an E-W8 application that guides beneficial owners through a
series of interview questions as they complete and certify an
electronic Form W-8. These officials indicated they favored an
interview-style approach because it improves efficiencies in the
overall certification process, assists taxpayers in choosing the
correct tax form, and reduces many common errors made by beneficial
owners who complete the Form W-8 manually.
Also, while the
IRS stressed its willingness to approve MOUs for applications that
meet their expectations, they suggested WAs should consider a
pre-submission conference and follow-up sessions to review any
technical issues and/or give a demonstration of their E-W8
application. These meetings would be followed by a formal written
submission document from the WA containing detailed information on
the E-W8 application’s certification and due diligence capabilities.
The IRS also reminded any WA entering into an MOU that they would
need to provide process flows and must be able to demonstrate their
systems for the IRS (ideally both Beta and Production level
In other discussions with IRS representatives, they have
indicated that, although in the short-term MOUs will only cover
Forms W-8BEN, it was their long-term goal to expand the MOU process
to include all Forms W-8 as well as the Form W-9.
applications hold many benefits for WAs, including considerable
efficiencies in compliance and resource costs. Also, E-W8
applications may be used to enhance the client-service experience by
providing such benefits as real-time feedback for modifying and
“curing” responses, offering alternate language preferences, and
utilizing the E-Sign Act provisions. An interview-style application
greatly increases these benefits by using built-in logic that
tailors the form completion and certification process to meet
individual client specific needs and circumstances.
wish to secure an MOU with the IRS for their E-W8 applications in
order to ensure they are in compliance with cross-border withholding
rules and regulations, and to reduce the costs associated with
misinterpreting IRS requirements. Securing an MOU also removes the
possibility of, and the costs associated with, an IRS directive to
upgrade an existing E-W8 application under audit.
our experience negotiating MOUs for our clients’ E-W8 applications,
the MOU submission document should include, but not necessarily be
limited to, the following information:
- WA information (Name, business units included, WA Status (QI
v. USWA), EIN, payee and income types);
- Overview of the E-W8 application capabilities;
- List of assumptions behind E-W8 application;
- Implementation of E-Sign Act;
- Descriptions of the following procedures and capabilities:
- Security IDs and passwords;
- Substantial presence test;
- Validation, including interaction of E-W8 application
and WA Account Master Systems;
- Validation results/output;
- Changes in circumstance;
- Presumption rules;
- Joint accounts;
- List of interview questions (for form completion),
- List of accepted capacities;
- User preferences and help functions;
- List of output reports and error messages;
- Information retention and data storage capabilities; and
- Adherence to substitute Form W-8 requirements.
WAs should also expect the IRS to require the E-W8 application to
include specific questions asking clients directly to self-identify
themselves as a U.S. person for U.S. tax purposes, for example,
- Whether the individual was born in the U.S.;
- Whether the individual has renounced his or her U.S.
- Whether the individual is presently subject to taxation in
the U.S. as a U.S. citizen or resident.
The IRS expects the E-W8 application to operate dynamically and
guide the client toward completing the correct Form W-8BEN or Form
W-9 based on his or her responses to such questions.
RECOMMENDATION 1: WAs should work closely with the IRS to
understand what should be included in their specific submissions.
Based on the information requirements set forth by the IRS, WAs
should consider creating appendices that satisfy important details,
thereby making the MOU submission document concise and not unwieldy.
RECOMMENDATION 2: WAs should take advantage of
the IRS outreach and willingness to negotiate MOUs for E-W8
applications that conform to IRS expectations. We have advised and
assisted numerous clients with the development of E-W8 applications,
and can help guide clients through the process of securing an MOU
with the IRS.