We are purchasing a cruise as a giveaway for our guest. Is this considered a product or will we need to withhold 30%?


The payment to the cruise ship company is a reportable payment similar to payments you make to hotels, and if the cruise both starts and ends in the United States the entire payment is U.S.-source income. If the cruise ship company is a non-U.S. person, the payment is subject to the Form 1042-S withholding and reporting rules.

You need more documentation, however, before making withholding and reporting decisions; the payment might be ECI income (effectively connected with conduct of a business in the United States) or income subject to Code section 883 exclusion. If you're giving the cruise as a prize or award, also consider whether you need to file an information return reporting the value of the cruise as income to the recipient.

As to the W-8BEN-E form, "Ask the Expert" cannot give you a tax opinion on the sufficiency of a vendor's withholding certificate. Here are two thing to note: First, when you receive a W-8BEN-E, we suggest you start your review by making sure it's the current form. Starting January 1, 2017, the only version of Form W-8BEN-E that can be accepted for a new vendor setup (or to replace an expiring form, or for a change in circumstance of the vendor) is the W-8BEN-E dated "Rev. April 2016" in the top left corner of page 1. You no longer can accept the "February 2014" version (though "February 2014" versions already in your files will remain valid until the forms expire).

Second, the inclusion of a U.S. address on a Form W-8BEN-E is a reason to question a claim of foreign status; note that there are also other reasons to question claims of foreign status and other items to assess when reviewing a withholding certificate for sufficiency, discussion of which is beyond the scope of "Ask the Expert."


This question was answered by COKALA Tax Information Reporting Solutions, LLC, a 3rd party, independent advisory services firm offering experienced and practical help for tax regulatory compliance for Forms W-9, W-8, W-2, 1099, 1098, 5498, 945, 1042, 1042-S, and state reporting. You can learn more about them at www.cokala.com.

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