In brief
What happened?
The IRS recently released a revised version (dated March 2024) of Form W-9, Request for Taxpayer Identification Number and Certification, and Instructions for the Requester of Form W-9. While the Form W-9 remains substantially unchanged, the revision to line 3a, which provides the federal tax classification of the provider of the form, is intended to provide clarity for limited liability companies (LLCs). New line 3b requires a flow-through entity to indicate whether it has direct or indirect foreign partners, owners, or beneficiaries when it provides the Form W-9 to another flow-through entity.
Why is it relevant?
The addition of line 3b is intended to provide a recipient of Form W-9 that is a flow-through entity with information about the existence of indirect foreign partners, owners, or beneficiaries coming from the US flow-through entity providing the form. This information is intended to help the recipient satisfy any applicable reporting requirements associated with Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., Schedule K-2, Partners’ Distributive Share Items—International, and Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc.—International, of Form 1065, U.S. Return of Partnership Income.
Actions to consider
Withholding agents and payors, especially those that are flow-through entities that need to determine their Schedules K-2 and K-3 reporting requirements, should begin using the new Form W-9 as soon as possible.
Flow-through entities that file a Form 1065 also should consider whether to request the revised Form W-9 from existing partners to determine if they have sufficient information to limit the scope of information required to be reported on Schedules K-2 and K-3, which would be the case if they are aware that there are no indirect foreign partners.
US partnerships in a tiered structure that have direct or indirect foreign partners requiring detailed Schedules K-2 and K-3 information from a lower tier partnership to satisfy its upstream Schedules K-2 and K-3 reporting may want to consider providing an updated Form W-9 to the lower-tier partnership with line 3b checked to confirm that they will be receiving the necessary information.
In detail
Form W-9
Payors required to file information returns with the IRS use Form W-9 to identify US payees and to obtain tax identification numbers (TINs) as required. Collecting a reliable Form W-9 removes the obligation to impose backup withholding.
Observation: The modifications made to Form W-9 do not change the standards of reasonable reliance. A Form W-9 is reasonable when it is the most recent version of the form when obtained and includes a name on line 1, TIN, signature, and date. A new Form W-9 is not required to be collected unless there is a substantial change in circ*mstances of the payee that make the certifications on the Form W-9 unreliable or incorrect.
Revised to provide clarity for LLCs
This version of Form W-9 provides clarification to the instructions for disregarded entities. Specifically, the instructions to lines 1, 2, and 3a have been modified.
The payee provides its name on lines 1 and 2. The instructions provide clarity for disregarded entities. A disregarded entity should not complete a Form W-9 in its own name. To facilitate proper reporting, information for a disregarded entity’s owner should be reported on line 1 and the disregarded entity’s name should be listed on line 2.
The IRS revised line 3a to clarify that a disregarded entity does not complete line 3a, but instead this line should be used to identify the status of its regarded single owner. Revised line 3a has a single box to check, along with available space for an LLC that is not disregarded to indicate its proper tax classification as corporation, S corporation, or partnership (C, S, or P). The Note in line 3a has been updated to emphasize this distinction for LLCs.
New line 3b to indicate foreign partners, owners, or beneficiaries
New line 3b has been added for partnerships (including LLCs classified as partnerships for federal income tax purposes), trusts, or estates to indicate if they have direct or indirect foreign partners, owners, or beneficiaries. Line 3b should be checked when a partnership (or flow through entity) provides this form to a flow-through entity in which it owns an interest. This change is intended to provide the flow-through entity with sufficient information regarding the status of its indirect foreign partners, owners, or beneficiaries to enable it to satisfy any of its IRS reporting requirements. A partnership with indirect foreign partners may be required to complete Form 1065, Schedules K-2 and K-3.
A requester of Form W-9 should note whether the box on line 3b has been checked if the requester is a flow-through entity that otherwise is required to obtain a Form W-9 from its partner, owner, or beneficiary. The requester may rely on the information provided on line 3b unless it knows that information is incorrect.
If line 3b is incomplete or it has been completed and the requester knows that the information is incorrect, the requester may be required to report information on Schedules K-2 and K-3 or otherwise provide the relevant information to its partner, owner, or beneficiary.
Observation: While a partnership partner is permitted to provide information about the foreign status of its direct or indirect partners, the IRS updated the Form W-9 to provide a uniform notice process.
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