In March 2024, the Internal Revenue Service ("IRS") released a new revision to Form W-9. Forms W-9 previously provided or collected do not expire nor need to be refreshed due to the publication of the new revision. Prospectively, however, persons who provide or collect a Form W-9 should begin using the revised version of Form W-9.
The new Form W-9 requires partnerships, trusts, estates, and limited liability companies ("LLCs") classified as partnerships to indicate on new "Line 3b" whether they have any foreign partners, owners, or beneficiaries if the Form W-9 is being provided to a partnership, trust, or estate in which the person providing the Form W-9 holds an ownership interest (a "lower-tier partnership"). Specifically, the box for Line 3b must be checked by any partnership, trust, or estate that has received a Form W-8 (or documentary evidence) from any partner, owner, or beneficiary establishing foreign status or that has received a Form W-9 from any partner, owner, or beneficiary that checked the box on Line 3b. This is the first time the Form W-9 has required such reporting of foreign ownership by pass-through partners.
The foreign ownership reporting requirement on the revised Form W-9 allows lower-tier partnerships to determine their reporting requirements for the taxable year, including whether they must file Schedules K-2 and K-3 (together, the "Schedules").1 Schedule K-2 reports items of international tax relevance from the operation of the partnership. Schedule K-3 reports to partners their shares of the international tax items reported on the Schedule K-2.2 A partnership is required to complete the Schedules if the partnership has items that are relevant to the determination of the US tax, withholding tax, or reporting obligations of its partners under the international provisions of the Internal Revenue Code.3 There are many instances when a partnership must complete the Schedules, including if the Schedules are required by its partners.4
The instructions to the Schedules provide a specific filing exception for domestic partnerships. Specifically, a domestic partnership is not required to file the Schedules if it satisfies four criteria:
(1) the partnership is a domestic partnership with no or limited foreign activity during the tax year,
(2) all of the partnership's direct partners are certain types of US persons that meet certain domestic ownership and beneficiary requirements,
(3) all partners were notified that they would not receive a Schedule K-3, and
(4) no partner requests that the partnership provide a Schedule K-3.5
The second component of the exception highlights the reason for the Form W-9 update¬: Without the new Line 3b disclosure, a lower-tier partnership would have no way of discerning whether its direct partners meet the domestic ownership and beneficiary requirements to satisfy the exception.
Moving forward, partnerships (including LLCs classified as partnerships), trusts, and estates must ensure they report their foreign ownership on their Forms W-9. Further, as the Form W-9 instructions state, a partnership, trust, or estate that checks Line 3b will itself also likely need to file the Schedules.6 Since the upper-tier partnership, trust, or estate has foreign partners, owners, or beneficiaries, it would not qualify for the domestic partnership filing exception. Lower-tier partnerships that receive Forms W-9 must be attentive to the new Line 3b and determine their international reporting requirements appropriately. The new foreign ownership reporting requirements on Form W-9 are consistent with the IRS's emphasis on expanding the reporting of foreign tax information. Partnerships must be careful to follow these requirements moving forward.
Footnotes
2. 2023 Partnership Instructions for Schedules K-2 and K-3 (Form 1065), at pg. 1.
3. 2023 Partnership Instructions for Schedules K-2 and K-3 (Form 1065), at pg. 1.
4. For instance, if a partner is required to determine its foreign tax credit on Forms 1116 or 1118, the partnership may be required to file the Schedules even if the partnership had no foreign activity during the tax year. See 2023 Partnership Instructions for Schedules K-2 and K-3 (Form 1065), at pg. 9-10.
5. 2023 Partnership Instructions for Schedules K-2 and K-3 (Form 1065), at pg. 2-3.
6. 2024 Form W-9, at pg. 3.
Visit us at mayerbrown.com
Mayer Brown is a global services provider comprising associated legal practices that are separate entities, including Mayer Brown LLP (Illinois, USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados (a Brazilian law partnership) and non-legal service providers, which provide consultancy services (collectively, the "Mayer Brown Practices"). The Mayer Brown Practices are established in various jurisdictions and may be a legal person or a partnership. PK Wong & Nair LLC ("PKWN") is the constituent Singapore law practice of our licensed joint law venture in Singapore, Mayer Brown PK Wong & Nair Pte. Ltd. Details of the individual Mayer Brown Practices and PKWN can be found in the Legal Notices section of our website. "Mayer Brown" and the Mayer Brown logo are the trademarks of Mayer Brown.
© Copyright 2024. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
