rp-04-21.pdf

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Part III

Administrative, Procedural, and Miscellaneous

[26 CFR 1.1441-5]: Withholding on Payments to Partnerships, Trusts and Estates

Amendment to Final Agreement for Withholding Foreign Partnerships and Withholding
Foreign Trusts and Additional Guidance for Qualified Intermediaries under Rev. Proc.
2003-64

Rev. Proc. 2004-21

SECTION 1. PURPOSE AND SCOPE
This revenue procedure modifies the final withholding foreign partnership (“WP”) and
withholding foreign trust (“WT”) agreements, contained in Rev. Proc. 2003-64, 2003-32
I.R.B. 306, by expanding the availability of certain simplified documentation, reporting, and
withholding procedures. This revenue procedure also makes a conforming change to the
portion of the Qualified Intermediary (“QI”) withholding agreement (the “QI agreement”)
contained in Rev. Proc. 2003-64.

SECTION 2. BACKGROUND
Rev. Proc. 2003-64 contains the WP and WT agreements described in Treasury
Regulation § 1.1441-5(c)(2)(ii) and (e)(5)(v) and sets forth the application procedures for
entering into such agreements. Rev. Proc. 2003-64 also amends the QI agreement,
contained in Rev. Proc. 2000-12, 2000-1 C.B. 387, to add new Section 4A.
Section 10.01 of the WP and WT agreements and new Section 4A.01 of the QI
agreement provide generally that a QI, WP, or WT may apply simplified documentation,
reporting, and withholding procedures to a foreign trust or foreign partnership if certain
conditions are met (the “Joint Account Provision”). Currently a QI, WP, or WT may apply

the Joint Account Provision only if, among other things, the foreign partnership or trust
receives from the QI, WP, or WT less than $200,000 of reportable amounts for a calendar
year (the “$200,000 cap”).
The IRS and Treasury have received comments seeking an expansion of the Joint
Account Provision. The comments indicated that expanding the availability of the Joint
Account Provision by eliminating the $200,000 cap would facilitate compliance by QIs,
WPs, and WTs with their documentation, reporting, and withholding obligations with respect
to foreign partnerships and foreign simple and grantor trusts. After considering these
comments, the IRS and Treasury have concluded that expanding the availability of the Joint
Account Provision by eliminating the $200,000 cap would be consistent with the objectives
of the underlying reporting and withholding regimes.
SECTION 3. EXPANSION OF JOINT ACCOUNT PROVISION

Appendices 1, 2, and 3 of Rev. Proc. 2003-64, containing the WP and WT
agreements and new Section 4A of the QI agreement, respectively, are amended as
follows. In Appendices 1 and 2, the first paragraph of Section 10.01 of the WP and WT
agreements are amended by inserting “and” before “(iii)” and by deleting “and (iv) the total
reportable amounts distributed to, and included in the distributive share of, the partnership
or trust for the calendar year do not exceed $200,000.” In Appendix 3, the first paragraph
of Section 4A.01 of the QI agreement is amended by inserting “and” before “(iii)” and by
deleting “and (iv) the total reportable amounts that QI has paid to accounts of the
partnership or trust that are covered by the QI agreement do not exceed $200,000 for the
calendar year.”

SECTION 4. EFFECTIVE DATE

The modifications to Rev. Proc 2003-64 made by this revenue procedure are
effective as of July 10, 2003, the effective date of Rev. Proc. 2003-64. Pursuant to Section
12.02 of the QI agreement, and Section 11.02 of the WP and WT agreements, these
amendments apply to all existing QI, WP, and WT agreements. These amendments will be
incorporated into the text of all QI, WP, and WT agreements entered into on or after the
date this revenue procedure is released.

As described in section 1.01 of Rev. Proc. 2003-64, a WP or WT agreement entered
into during a calendar year may be made effective as of the first day of that calendar year.
With the changes made by this revenue procedure, some foreign partnerships and trusts
may wish to act as WPs or WTs beginning in 2003. Therefore, upon request, the IRS will
execute WP and WT agreements with terms beginning on January 1, 2003, even if the
application to enter into a WP or WT agreement was or is received after December 31,
2003, provided that the IRS receives the completed application on or before June 30, 2004.

SECTION 5. REQUEST FOR COMMENTS

Section 4A.02 of the QI agreement and Section 10.02 of the WP and WT
agreements allow the QI, WP, or WT to use simplified documentation, reporting, and
withholding procedures if, among other things, the QI, WP, or WT is a general partner of
the partnership or a trustee of the trust (the “related-party requirement”). The IRS and
Treasury are reviewing the related-party requirement and solicit comments as to
whether it presents difficulties for taxpayers considering participation in the QI, WP, or
WT programs, and, if so, the reasons for such difficulties. Comments also are
requested regarding the possibility of eliminating the requirement or modifying it to
address any such difficulties, while ensuring consistency with the objectives of the
underlying reporting and withholding regimes.
More generally, the IRS and Treasury remain committed to the QI, WP, and WT
programs and are continuing to review them to ensure their optimal effectiveness.
Therefore, comments are requested regarding additional ways the programs’ current
rules and forms of agreement could be improved in a manner that is consistent with the
objectives of the underlying reporting and withholding regimes.
SECTION 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2003-64, 2003-32 I.R.B. 306 is modified.

SECTION 7. CONTACT INFORMATION
For further information regarding this revenue procedure, contact Ethan Atticks,
Carl Cooper or Valerie Mark Lippe at (202) 622-3840 (not a toll free call).