Exception for payments to certain payees and certain other payments

(a) Exempt recipients—(1) In general. A payor of any reportable payment (as defined in section 3406(b)) must not withhold under section 3406 if the payee is—

(i) An organization exempt from taxation under section 501(a) or an individual retirement account;

(ii) The United States or any wholly owned agency or instrumentality thereof;

(iii) A state, the District of Columbia, a possession of the United States, any political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing;

(iv) A foreign government, a political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing (as defined in regulations under section 892); or

(v) An international organization or any wholly owned agency or instrumentality thereof (as defined in section 7701(a)(18)).

(2) Nonexclusive list. Paragraph (a)(1) of this section does not prescribe an exclusive list of payees that are exempt from information reporting and also are exempt from withholding under section 3406.

(b) Determination of whether a person is described in paragraph (a)(1) of this section. The determination of whether a person is a payee described in paragraph (a)(1) of this section must be made as provided in the applicable provisions of section 6049 and the regulations issued thereunder. A payor, even if permitted to treat a person as an exempt recipient without requiring a certificate under the provisions of section 6049, may require a payee, otherwise not required to file a certificate regarding its exempt status, to file a certificate and may treat a payee who fails to file the certificate as a person who is not an exempt recipient. See § 31.3406(h)-3 for a description of the Form W-9 or a substitute form prescribed under section 3406 for claiming exempt status.

(c) Prepaid or advance premium life-insurance contracts. A payor of a reportable payment (as defined in section 3406(b)(1)) may, but is not required to, withhold under section 3406 on reportable payments made from January 1, 1984, to December 31, 1996, on prepaid or advance premium life-insurance contracts to a payee who is the owner for tax purposes of the prepaid or advance premium life-insurance contract. For purposes of this exception from backup withholding, a prepaid or advance premium life-insurance contract is one entered into on or before June 30, 1984, by the payee and under which the increment in value of the prepaid or advance premium is used for the payment of premiums during the period in which the exception from backup withholding applies.

(d) Reportable payments made to nonresident alien individuals. A payment of interest to a nonresident alien individual that is described in § 1.6049-(8)(a) of this chapter is not subject to withholding under section 3406 if the payor may treat the payee as a foreign beneficial owner or foreign payee under the rules of § 1.6049-5(b)(12). (For interest paid to a Canadian nonresident alien individual on or before December 31, 2012, see paragraph (d) of this section as in effect and contained in 26 CFR part 1 revised April 1, 2000.)

(e) Certain reportable payments made outside the United States by foreign persons, foreign offices of United States banks and brokers, and others—(1) Reportable payments other than gross proceeds from sales of digital assets. For reportable payments made after June 30, 2014, other than gross proceeds from sales of digital assets (as defined in § 1.6045-1(a)(19) of this chapter), a payor or broker is not required to backup withhold under section 3406 of the Code on a reportable payment that is paid and received outside the United States (as defined in § 1.6049-4(f)(16) of this chapter) with respect to an offshore obligation (as defined in § 1.6049-5(c)(1) of this chapter) or on the gross proceeds from a sale effected at an office outside the United States as described in § 1.6045-1(g)(3)(iii) of this chapter (without regard to whether the sale is considered effected inside the United States under § 1.6045-1(g)(3)(iii)(B) of this chapter). The exception to backup withholding described in the preceding sentence does not apply when a payor or broker has actual knowledge that the payee is a United States person. Further, no backup withholding is required on a reportable payment of an amount already withheld upon by a participating FFI (as defined in § 1.1471-1(b)(91) of this chapter) or another payor in accordance with the withholding provisions under chapter 3 or 4 of the Code and the regulations under those chapters even if the payee is a known U.S. person. For example, a participating FFI is not required to backup withhold on a reportable payment allocable to its chapter 4 withholding rate pool (as defined in § 1.6049-4(f)(5) of this chapter) of recalcitrant account holders (as described in § 1.6049-4(f)(11) of this chapter), if withholding was applied to the payment (either by the participating FFI or another payor) pursuant to § 1.1471-4(b) or § 1.1471-2(a) of this chapter. For rules applicable to notional principal contracts, see § 1.6041-1(d)(5) of this chapter. For rules applicable to reportable payments made before July 1, 2014, see § 31.3406(g)-1(e) in effect and contained in 26 CFR part 1 revised April 1, 2013.

(2) [Reserved]

(f) Applicability date. This section applies to payments made on or after January 1, 2025. (For payments made before January 1, 2025, see § 31.3406(g)-1 in effect and contained in 26 CFR part 1 revised April 1, 2024.)