Rev. Rul. 70-616

Advice has been requested whether, under the circumstances stated in Revenue Ruling 68-237, C.B. 1968-1, 391, a United States bank acting in the capacity of a withholding agent is required under section 1.1461-2(c) of the Income Tax Regulations to file an annual information return, Form 1042S, of all items of income specified in section 1.1441-2 of the regulations paid to a foreign bank.

Revenue Ruling 68-237 provides that a United States bank maintaining an omnibus account for a foreign bank may, within the discretion of the United States bank, accept the actual owner's affidavit furnished by the foreign bank disclosing his name, address, and United States citizenship and a list of securities he owned and thus be relieved from withholding United States income tax on income from these securities under section 1441 of the Internal Revenue Code of 1954.

Section 1.1461-2(b)(1) of the regulations provides, in general, that every withholding agent shall make an annual return on Form 1042 of the tax required to be withheld under sections 1441 and 1442 of the Code. The regulations further provide that the withholding agent is required to file Form 1042 for a calendar year even though no tax is required to be withheld for such year if the withholding agent is required under section 1.1461-2(c)(1) of the regulations to file an information return on Form 1042S with respect to any payments made during such year.

Section 1.1461-2(c)(1)(iii) of the regulations provides that every withholding agent shall make on or before March 15 an annual information return on Form 1042S of all items of income specified in section 1.1441-2 of the regulations paid during the previous calendar year to nonresident alien individuals, foreign partnerships, or foreign corporations if such items consist of amounts upon which tax would have been required to be withheld but for the provisions of any specific exemption from withholding applicable under the authority of any regulations or any ruling or procedure of the Commissioner of Internal Revenue.

Section 1.1461-2(c)(2)(i) of the regulations lists the information required to be furnished on Form 1042S. Section 1.1461-2(c)(2)(ii) provides that if a Form 1042S is prepared in respect of an item of income upon which tax has not been withheld under sections 1441 and 1442 of the Code, a brief statement as to the authority for such failure to withhold shall be made upon the form or a separate statement as to such authority may be attached to the original copy of the Form 1042S.

Since under sections 1441 and 1442 of the Code the United States bank would have been required to withhold income tax on items of income specified under section 1.1441-2 of the regulations but for the provisions of Revenue Ruling 68-237, the United States bank, if it elects not to withhold under Revenue Ruling 68-237, is required under section 1.1461-2(c)(1)(iii) of the regulations to file an information return on Form 1042S. The United States bank is also required under section 1.1461-2(c)(2)(ii) of the regulations to submit a statement on the information return itself citing the authority for its failure to withhold.

In addition to the information required under section 1.1461-2(c)(2)(i) of the regulations to be furnished on Form 1042S, in the circumstances involved in Revenue Ruling 68-237, the United States bank shall also include the name, address, identifying number (if known) and a list of the securities of the actual owner who has furnished to the foreign bank a completed affidavit which was in turn furnished to the United States bank. The United States bank shall also state that it has accepted and relied on the affidavit of actual ownership as the basis for not withholding on income from securities actually owned by the United States citizen.

Accordingly, under the circumstances involved in Revenue Ruling 68-237, the United States bank is required to file an information return on Form 1042S supplying the information described above.

Revenue Ruling 68-237 is hereby amplified.