August 17, 2012: Acceptance of Electronic Forms W-8
Foreign Account Tax Compliance Act (FATCA)
Electronic submissions of Forms W-8
In a memo released from the Internal Revenue Service (IRS) Office of Chief Counsel, Associate Chief Counsel Steven A. Musher concluded that under certain circumstances a PDF or fax of a Form W-8 is acceptable under the existing Chapter 3 regulations (Treas. Reg. § 1.1441-1(e)(4)(iv)). This conclusion may also be extended to the Foreign Account Tax Compliance Act (FATCA), which explicitly allows a withholding agent to accept a facsimile of Forms W-8 subject to certain requirements (Prop. Treas. Reg. § 1.1471-3(c)(6)(iv)).
Musher stated that Chapter 3 currently allows electronic submission of Forms W-8 where “a Form W-8 that is signed with a handwritten signature, scanned into an electronic system, and then transmitted directly to a withholding agent through that electronic system (for example, as a PDF or facsimile).” Musher’s conclusion reaffirmed similar comments made in June by Danielle Nishida, attorney in the Office of Chief Counsel, at the 2012 Tax Withholding and Reporting Conference in New York. The general requirements for electronic submission, cited by Musher, include the following:
- The electronic system must ensure that the information received is the information sent and that the system documents user access resulting in the submission, renewal and modification of the electronic form.
- The electronic system must ensure that the person sending the form is the person named on the form.
- The electronic version of the Form W-8 must include the same information as the official IRS paper Form W-8.
- The electronic transmission must contain an electronic signature by the person named on the Form W-8 (or authorized person) and must be subject to the same penalties of perjury appearing on the official IRS paper Form W-8.
- Upon an IRS examination, “the withholding agent must supply a hard copy of the electronic Form W-8 and a statement that, to the best of the withholding agent’s knowledge, the Form W-8 was filed by the person” named on the form.
Generally, the third requirement can be satisfied when transmitting a PDF because the electronic version of the Form W-8 will typically be the official IRS Form W-8. The fourth requirement can be met since, according to Musher, physically signing, scanning and transmitting the form will satisfy the electronic signature requirement. Additionally, the fifth requirement is relatively easy to satisfy if a method or system is in place to retrieve the electronic forms.
However, the first and second requirements may be more complicated to satisfy. Musher laid out four methods to meet these requirements:
- Ensure the email the PDF is sent from belongs to the individual or entity named on the form.
- Match the e-mail address of the sender to an email address on the withholding agent’s file for the individual or entity named on the form.
- Confirm the form was sent by the individual or entity named on the form orally or in writing and document the receipt and date of receipt of such confirmation.
- For an entity, the withholding agent does not need to establish that the individual sending the form is the signer, just that the individual is an owner or employee of the entity named on the form.
These suggested methods to satisfy the requirements seem feasible; however, withholding agents should further analyze whether a policy of accepting electronic forms should be adopted. Given the requirements, as well as the controls needed to determine compliance, withholding agents may not find this electronic alternative viable.
Moreover, there is still risk associated with accepting electronic forms. The IRS memo cannot be used as precedent and the regulatory rules could be interpreted to require an actual system (e.g., an electronic W-8 application designed to complete and submit an electronic Form W-8) rather than an ad hoc procedure for electronic submission. Until the IRS releases guidance that can be relied upon, withholding agents should carefully consider whether and how they should adopt an official policy to accept electronic Forms W-8.