hold such taxes under § 1.1441-1 as would be required to be withheld by the assignor had no such sale or transfer been made.

(3) Defaulted interest coupons. The tax shall be withheld at the source under § 1.1441-1 on the gross amount of interest without regard to whether or not the payment constitutes a return of capital or the payment of income within the meaning of section 61. Thus, for example, the tax shall be withheld in accordance with § 1.1441-1 from defaulted interest payments upon bonds which were purchased flat at quotations representing the price of both the bonds and the defaulted matured interest coupons. Appropriate adjustments, if any, will be made upon the payee's filing of a claim for refund, together with appropriate supporting evidence, in accordance with paragraph (h) of this section.

(4) Unknown owner. Withholding is required under § 1.1441-1 in the case of interest upon all bonds or securities the owners of which are not known to the withholding agent unless such bonds or securities were issued by a corporation before January 1, 1934, contain a tax-free covenant, and do not have a maturity date which was extended on or after that date. For withholding under section 1451 in the case of unknown owners, see paragraph (a)(2) of § 1.1451-1.

(5) Tax-free covenant bonds-(i) Issued on or after January 1, 1934. Withholding is required under § 1.1441-1 in the case of interest upon bonds or other corporate obligations issued on or after January 1, 1934, and containing a tax-free covenant.

(ii) Issued before January 1, 1934. Withholding is not required under § 1.1441-1 in the case of interest upon bonds or other corporate obligations issued before January 1, 1934, containing a tax-free covenant, and not having a maturity date which was extended on or after that date. A domestic or resident fiduciary is required, however, to withhold tax under § 1.1441-1 in the case of so much of such interest as is properly allocable under section 652 or 662 to a nonresident alien beneficiary. See paragraph (f) of this section and of § 1.1451-1. For general rules respecting the with

holding of tax under section 1451 in the case of such interest, see § 1.14511.

(iii) Extended maturity date. Withholding is required under § 1.1441-1 in the case of interest upon bonds or other corporate obligations issued before January 1, 1934, and containing a tax-free covenant, if the maturity date of the bonds or obligations has been extended on or after that date. See paragraph (c) of § 1.1451-1.

(iv) Special rate of 271⁄2 percent. The rate of tax to be withheld at the source under § 1.1441-1 shall not exceed 271⁄2 percent in the case of interest on bonds, mortgages, or deeds of trust, or other similar obligations of a corporation if:

(a) The liability assumed by the debtor exceeds 271⁄2 percent of the interest, and

(b) The interest would be subject to withholding under the provisions of subsections (a), (b), and (c) of section 1451 except for the fact that the maturity date of the obligations has been extended on or after January 1, 1934. See paragraph (c) of § 1.1451-1.

(d) Special rules applicable to certain income-(1) Determination of amount to be withheld. If in the case of amounts described in paragraph (b) of § 1.1441-2, other than amounts described in subparagraph (2)(ii) of such paragraph, the withholding agent does not know the amount of recognized gain, he is required to deduct and withhold such amount under § 1.14411 as may be necessary to assure that the tax withheld will not be less than 30 percent of the recognized gain. For this purpose, the recognized gain shall be determined without regard to the deduction allowed by section 1202 with respect to capital gains. The amount so withheld shall not exceed 30 percent of the amount payable by reason of the transaction giving rise to the recognized gain, except that the amount payable may be determined by excluding the net unrealized appreciation described in section 402(a)(2). Appropriate adjustment, if any, will be made by the payee's filing of a claim for refund, together with appropriate supporting evidence, in accordance with paragraph (h) of this section.

(2) Statement showing recognized gain. The withholding agent may, unless he has reason to believe to the contrary, rely on the statement of the person entitled to the gain described in subparagraph (1) of this paragraph as to the amount of gain which is recognized on the transaction involved and subject to withholding under § 1.1441-1. This statement shall be filed with the withholding agent in duplicate. It shall show the computation of the amount of gain subject to withholding, shall be dated, shall be signed by the person entitled to the income, shall contain the taxpayer's identifying number, if any, and shall contain, or be verified by, a written declaration that it is made under the penalties of perjury. No particular form is prescribed for this statement. The duplicate copy of each statement filed during any calendar year pursuant to this subparagraph shall be forwarded by the withholding agent with, and attached to, the Form 1042S required by paragraph (c) of § 1.1461-2 with respect to such gain for such calendar year.

(e) Personal exemption—(1) The taxation of nonresident alien individuals is provided for in Part II (section 871 and following), Subchapter N, Chapter 1 of the Code. Section 874(a) makes the filing of a return a prerequisite to the allowance of deductions, including deductions of personal exemptions. Except in the circumstances described in subparagraph (2) of this paragraph, personal exemptions do not serve to reduce the amount of tax to be withheld under § 1.1441-1.

(2) In the determination of the tax to be withheld at the source under § 1.1441-1 from remuneration paid for labor or personal services performed within the United States by a nonresident alien individual, the benefit of the deduction for personal exemptions provided in section 151, to the extent allowable under section 873(b)(3) and the regulations thereunder, shall be allowed, prorated upon a daily basis for the period during which labor or personal services are performed within the United States by the alien individual. The benefit of the deduction for such personal exemptions shall also be allowed in the determination of the

tax of 14 percent to be withheld at the source under § 1.1441-1 and paragraph (c) of § 1.1441-2 from amounts paid after March 4, 1964, to nonresident alien individuals who are temporarily present in the United States as nonimmigrants under subparagraph (F) or (J) of the Immigration and Nationality Act, as amended, and such personal exemptions shall be prorated upon a daily basis for the period during which the described nonresident alien student or scholar receives the payments. The proration is on a basis of $1.70 per day for each exemption to which the nonresident alien individual is entitled. Thus, if A, a married nonresident alien individual without dependents is paid remuneration subject to withholding under § 1.1441-1 for performing personal services during a stay of 100 days in the United States, the amount of $170 will be allocated as the portion of the deduction to be allowed against the remuneration for personal services performed within the United States during that period; and withholding at 30 percent shall be applied against the balance, if any, of the remuneration. If, for example, the total remuneration paid to A for that period is $2,000, a total tax in the amount of $549 [($2,000-$170)×0.30] is required to be withheld under § 1.1441-1. However, if A is a resident of Canada or Mexico, and his spouse has no gross income from sources within the United States, which is subject to income tax under Chapter 1 of the Code, and is not the dependent of another taxpayer subject to such tax, an amount of $340 will be allocated as the portion of the deduction to be allowed against the remuneration for personal services performed within the United States. Thus, in such case, a total tax in the amount of $498 [($2,000-$340)×0.30] is required to be withheld under § 1.1441-1. As to what constitutes remuneration for labor or personal services performed within the United States see section 861(a)(3) and the regulations thereunder.

(f) Partnerships and fiduciaries. Domestic partnerships are required to withhold the tax at source under § 1.1441.1 on items of income described in paragraphs (a) and (b) of § 1.1441-2 that are included in the distributive

share (including amounts that are not actually distributed) of a member of such partnership who is a nonresident alien individual, nonresident alien or foreign fiduciary of a trust or estate, foreign partnership, or foreign corporation. Resident or domestic fiduciaries of trusts and estates are required to withhold the tax at source under § 1.1441-1 on all items of income described in paragraphs (a) and (b) of § 1.1441-2 that constitute gross income from sources within the United States (including amounts that are not actually distributed) of beneficiaries who are nonresident alien individuals, foreign partnerships, or foreign corporations. Because the gross income allocable to a partner and the income includable in the gross income of the beneficiary cannot be determined until the end of a taxable year of the partnership, trust, or estate, the partnership and the fiduciary of a trust or estate shall withhold under this section on all distributions to such partners and beneficiaries during the taxable years to the extent such distributions include items of income described in paragraphs (a) and (b) of § 1.1441-2. If the tax on actual distributions exceeds the tax on amounts includable in the gross income of the partner or beneficiary, the partner or beneficiary may file a claim for refund together with appropriate supporting evidence in accordance with paragraph (h) of this section. If a partnership or a fiduciary withholds under this section on a distributive partnership share or distributable net income of a trust or estate before the income is actually distributed to a partner or beneficiary, then withholding is not required when such income is subsequently distributed. Income described in paragraphs (a) and (b) of § 1.1441-2 that is paid to a foreign partnership or to a nonresident alien or foreign fiduciary is subject to withholding under § 1.1441-1 even though the members of the partnership or the beneficiaries of the trust or estate are individuals who are citizens or residents of the United States or are domestic corporations.

(g) Trust income taxable to grantor. The income of a trust created by a nonresident alien individual and tax

able to the grantor under the provisions of Subpart E, Part I, Subchapter J, Chapter 1 of the Code, is subject to withholding under §1.1441-1, even though the fiduciary or beneficiaries of the trust are citizens or residents of the United States and regardless of whether the beneficiaries are exempt from income tax.

(h) Claims for refund. A claim for refund referred to in paragraph (b) (1), (c) (3), (d) (1), or (f) of this section shall be made in accordance with the provisions of §§ 301.6402-2 and 301.6402-3 of this chapter (Regulations on Procedure and Administration).

(i) Rents paid to foreign tax-exempt organizations. For the rule for withholding on rents paid to foreign taxexempt organizations, see § 1.1443-1. (Approved by the Office of Management and Budget under control number 15450795)

(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80 Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C. 7805) of the Internal Revenue Code of 1954)

[T.D. 6500, 25 FR 12074, Nov. 26, 1960, as amended by T.D. 6908, 31 FR 16771, Dec. 31, 1966; T.D. 7378, 40 FR 45436, Oct. 2, 1975; T.D. 7977, 49 FR 36831, Sept. 20, 1984]

§ 1.1441-4 Exemptions from withholding.

(a) Income connected with a U.S. business—(1) In general. No withholding is required under § 1.1441-1 in the case of any item of income if such income is effectively connected with the conduct of a trade or business within the United States by the person entitled to such income and is includible in the person's gross income under section 871(b)(2), section 842, or section 882(a)(2) for the taxable year and if the person has filed the statement prescribed by paragraph (a)(2) of this section. This paragraph (a)(1) shall apply to income for services performed by a foreign partnership or a foreign corporation (other than a foreign corporation which has income to which section 543(a)(7) applies for the taxable year) but shall not apply to compensation for personal services performed by an individual. In determining whether services are performed by a foreign corporation or by

an individual, see Revenue Ruling 74330, 1974-2 C.B. 278, and Revenue Ruling 74-331, 1974-2 C.B. 282. For rules with respect to compensation for personal services performed by an individual, see paragraph (b) of this section. In determining whether an item of income from sources within the United States is, or is deemed to be, effectively connected with the conduct of a trade or business within the United States by the person entitled to the income, see section 864(c)(2), section 871(d), and sections 882 (d) and (e), and the regulations thereunder.

(2) Statement claiming exemption. In order for the exemption provided by paragraph (a)(1) of this section to apply for any taxable year, the person entitled to the income must file with the withholding agent a statement in duplicate that the income described in the statement is, or is expected to be, effectively connected with the conduct of a trade or business within the United States and that such income is includible in his gross income for the taxable year. This statement shall Ishow (i) the name and address of the withholding agent and of the person entitled to the income, (ii) the taxpayer's identifying number, (iii) the nature of the item or items of income with respect to which the statement is filed, (iv) the trade or business with which such income is, or is expected to be, effectively connected, and (v) the taxable year in respect of which the statement is made. This statement shall be filed with the withholding agent for each taxable year of the person entitled to the income, and before payment of the income in respect of which it applies. Any statement so filed shall be effective only with respect to the item or items of income specified therein and shall constitute authorization to the withholding agent to pay such income during the taxable year without deduction of the tax at source under § 1.1441-1. The statement shall be amended by the person entitled to the income if subsequent circumstances arising during the taxable year indicate that the income is not, or is not expected to be, effectively connected with the conduct of a trade or business within the United States. Any statement required

by this subparagraph may be made on a properly executed Form 4224, which shall be filed in duplicate with the withholding agent. The duplicate copy of each statement or form filed during any calendar year pursuant to this subparagraph shall be forwarded by the withholding agent with, and attached to, any Form 1042S required by paragraph (c) of § 1.1461-2 with respect to such income for such calendar year.

(b) Compensation for personal services of an individual—(1) Exemption from withholding. Withholding is not required under § 1.1441-1 from salaries, wages, remuneration, or any other compensation for personal services of a nonresident alien individual if such compensation is effectively connected with the conduct of a trade or business within the United States and

(i) Such compensation is subject to withholding under section 3402, relating to withholding of tax at source on wages, and the regulations thereunder.

(ii) Such compensation would be subject to withholding under section 3402 but for the provisions of section 3401(a) (other than paragraph (6) thereof) and the regulations thereunder.

(iii) Such compensation is for services performed by a nonresident alien individual who is a resident of Canada or Mexico and who enters and leaves the United States at frequent intervals.

(iv) Such compensation is, or will be, exempt from the income tax imposed by Chapter 1 of the Code by reason of a provision of the Internal Revenue Code or a tax treaty to which the United States is a party or

(v) Such compensation is paid after January 3, 1979 as a commission or rebate paid by a ship supplier to a nonresident alien individual, who is employed by a nonresident alien individual, foreign partnership, or foreign corporation in the operation of a ship or ships of foreign registry, for placing orders for supplies to be used in the operation of such ship or ships with the supplier. See section 162(c) and the regulations thereunder for denial of deductions for illegal bribes, kickbacks, and other payments.

(2) Manner of obtaining withholding exemption under tax treaty—(i) In general. In order to obtain the exemption from withholding by reason of a tax treaty, provided by paragraph (b)(1)(iv) of this section, a nonresident alien individual must submit a statement (described in paragraph (b)(2)(ii) of this section) to each withholding agent from whom amounts are to be received. A separate statement must be filed for each taxable year of the alien individual. If the withholding agent is satisfied that an exemption from withholding is warranted (see paragraph (b)(2)(iii) of this section), the statement shall be accepted in the manner set forth in paragraph (b)(2)(iv) of this section. The exemption from withholding becomes effective for payments made at least ten days after a copy of the accepted statement is forwarded to the Director of the Foreign Operations District.

(ii) Statement claiming withholding exemption. The statement claiming an exemption from withholding shall be made on Form 8233. Form 8233 may be used for claiming exemption from withholding under tax treaties to which the United States is a party or with respect to the personal exemption amount described in § 1.14413(e)(2). Form 8233 shall be dated, signed by the person claiming the exemption from withholding, and verified by a declaration that the statements are made under the penalties of perjury. Form 8233 shall contain

(A) The individual's name, address, United States taxpayer identification number, and United States visa number, if any,

(B) The country that issued the individual's passport and the number of such passport, or the individual's permanent address if a citizen of Canada or Mexico.

(C) The taxable year for which the statement is to apply, the compensation to which it relates, and the amount (or estimated amount if exact amount not known) of such compensation,

(D) A statement that the individual is not a citizen or resident of the United States,

(E) The number of personal exemptions claimed by the individual,

(F) A statement as to whether the compensation to be paid to him or her during the taxable year is or will be exempt from income tax and the reason why the compensation is exempt,

(G) If the compensation is exempt from withholding by reason of an income tax treaty to which the United States is a party, the tax treaty and provision under which the exemption from withholding is claimed and the country of which the individual is a resident, and

(H) Sufficient facts to justify the claim in exemption from withholding.

(iii) Review by withholding agent. The exemption from withholding provided by paragraph (b)(1)(iv) of this section shall not apply unless the withholding agent accepts (in the manner provided in paragraph

(b)(2)(iv) of this section) the statement on Form 8233 supplied by the nonresident alien individual. Before accepting the statement the withholding agent must examine the statement. If the withholding agent knows or has reason to know that any of the facts or assertions on Form 8233 may be false or that the eligibility of the individual's compensation for the exemption cannot be readily determined, the withholding agent may not accept the statement on Form 8233 and is required to withhold under this section. If the withholding agent accepts the statement and subsequently finds that any of the facts or assertions contained on Form 8233 may be false or that the eligibility of the individual's compensation for the exemption can no longer be readily determined, then the withholding agent shall promptly so notify the Director of the Foreign Operations District by letter, and the withholding agent is not relieved of liability to withhold on any amounts still to be paid. If the withholding agent is notified by the Foreign Operations District that the eligibility of the individual's compensation for the exemption is in doubt or that such compensation is not eligible for the exemption, the withholding agent is required to withhold under this section. The rules of this paragraph are illustrated by the following examples.