With regard to NRA reporting, does a vendor have to identify their chapter 4 status for non U.S. source spend? I do not have any FFIs, but I do have vendors with U.S.-sourced FDAP income, so for these transactions, should I have a chapter 4 status too?

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A. If we understand your question, you are talking about vendors you know are not subject to chapter 4, is that correct?  

Vendors completing the IRS W-8BEN-E can and should indicate their appropriate chapter 4 status. That being said, tax expert Marianne Couch has noted that many (but not all) payments out of accounts payable will not be subject to FATCA (chapter 4), and that IRS regulations allow withholding agents (you) to create a substitute W-8BEN-E for use in those situations.

This allows your vendors to avoid wrestling with the 30 parts on the IRS W-8BEN-E. Instructions for substitute forms can be found in the “Instructions for the Requester of the Forms W-8.” Marianne cautions: “Your staff will need to know the difference in order to know which form to use, if you create a substitute W-8BEN-E.”

Q. This response did provide guidance, but my question still remains. The transactions in question will fall under chapter 3 reporting. These vendors have filled out the appropriate areas on W-8BEN-E for sourced FDAP income; however, a lot leave the chapter 4 status area blank. I seem to have many rules on this situation. Some of my sources say if it is not a FATCA withholdable payment, then this area can be left blank, but I also have information that states foreign vendors with U.S. sourced income must disclose if they have any U.S. persons as owners?

We do not have a substitute form, nor do we have anyone in house that can work on this for us now. I want to ensure that my forms are valid for my reportable vendors.

I hope my question is clear. Please let me know.

A. The allowances referenced in our prior email seem to indicate that, provided you have what you need for chapter 3 reporting, what you have is sufficient. However, we would err on the side of caution and say foreign vendors submitting the IRS W-8EN-E should complete all the parts that apply. In the case of a typical AP vendor, that’s going to include part I, part III, part XXV and part XXIX.

Therefore if a vendor uses a particular form but does not complete the form, such as a W-8BEN-E, in order to be thorough we would go back and ask the vendor to complete it—asking, for example, that they complete part XXV, which is for active NFFEs, those vendors actively providing product or non-financial services.

When a vendor provides you a (complete) W-8BEN-E, rather than a W-8ECI or W-8IMY, you may rely on that documentation, unless you have reason to suspect that the vendor is other than what they represent on the W-8BEN-E.

The introduction of chapter 4 brought a new level of complexity to foreign payment reporting. You might want to contact a tax attorney or tax consultants such as Cokala or IRSCompliance with questions relating to chapter 4 documentation, withholding and reporting. A starting point might be to attend a Cokala webinar on W-8s and 1042-S, where you may ask questions.

We hope this is helpful. 

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