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#2248138 - 01/25/21 11:13 PM W-8 BEN and Closer Connection Exception
VermontBanker Offline
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Joined: Jan 2021
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We are currently updating our procedures for collecting W-8 BENs from non-resident aliens.

My question: What is our responsibility when it comes to the "Closer Connection" exception?

If we have a customer sign a W9 because they pass the substantial presence test, and they later claim the "Closer Connection" exception, will this create a reporting issue? Is it the customer's responsibility to let us know that they are claiming this exception? Should we ask each time just in case?

Just wondering if there are established rules out there, and/or what other FI's do. Thanks!

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#2248144 - 01/26/21 01:06 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
rlcarey Offline
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It really boils down to the customer informing you if you handed them the improper form to complete. You in no way should get involved with telling them which form to complete or figuring out their status. That is a job for the customer's legal counsel.
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#2248159 - 01/26/21 03:32 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
VermontBanker Offline
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I guess I'm speaking from a basic procedural standpoint. When drafting account opening procedures, we need to have some guidance for handling non-resident aliens.

Are you saying that we should treat all account-holders, unless they tell us otherwise? I feel that will be almost never. Nearly all of our non-residents aliens are young students who almost certainly would not know to tell us they need to complete a W-8 BEN instead of a W-9.

I understand that ultimately it is up to the individual opening the account, but I'm sure most banks provide guidance to their staff on which forms should be completed when. I'm hoping for some best practices.

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#2248166 - 01/26/21 04:22 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
rlcarey Offline
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If you are dealing with a non-resident alien, I think most banks will provide them a W-8BEN. Since they sign the form under penalty of perjury - it is really up to them to let you know whether they need a W-9 instead.
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#2248266 - 01/27/21 06:03 PM Re: W-8 BEN and Closer Connection Exception rlcarey
VermontBanker Offline
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Sounds good. Thank you!

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#2248268 - 01/27/21 06:12 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
VermontBanker Offline
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One more question regarding W8-BENs...for Line 3: Permanent residence address, I understand that this is normally the person's permanent address in their tax home.

On the W8-BEN instructions, I see that students and "researchers" are allowed to enter their US address if they no longer have permanent address in their foreign country. They then enter the country they were a resident of "at the time of or prior to" their entry into the US" on line 9.

This led me to wonder:

What if someone is a non-resident alien based on the Substantial Presence Test, but is not a student/teacher, etc., and no longer has a permanent address in another country.

For example, let's say John moved to the US from the UK on December 15th, 2020. For the 2020 tax year, he was in US for fewer than 31 days, so automatically fails the Substantial Presence Test.

How should John fill out the W8 BEN? Should he input his US address but list the "UK" on line 9, as if he were a student? Should he indicate anywhere why the permanent address does not match the line 9?

Thank you!

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#2248275 - 01/27/21 08:00 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
rlcarey Offline
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That only applies if the person is a recipient of scholarship or fellowship grant income.

If I had a non-resident alien at my bank that told me he does not have a permanent address in the country from which he has presented identification documents, I would be sending them down the street.

This is why, unless a bank has an international banking department, at the very least they limit non-resident aliens to non-interest bearing accounts and forgo all of these questions and headaches concerning W-8BENs and 1042-S reporting.
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#2248347 - 01/28/21 09:45 PM Re: W-8 BEN and Closer Connection Exception rlcarey
VermontBanker Offline
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I'll pass along your recommendation, but I suspect our management will not abide.

Plus, the way our account opening process works, our front-line staff essentially obtain a W9 (or W8 BEN) as appropriate for all new accounts. The docs are embedded in our general account opening docs, so I'm not sure they can be separated depending on whether the account is interest bearing or not. (Or, at least, not without the risk of mass amounts of user error.)


As I'm poring through the W-8-BEN instructions, I'm also confused about the treaty benefits section (Part II). Does this section apply to bank deposit interest?

I'm seeing different posts that seem to indicate that Chapter 3 does not include bank deposit interest as a withholdable payment.

However, if I actually read the full explanation in Publication 515, this seems to apply only to banks that fit specific parameters:

Interest on deposits (Income Code 29). Foreign persons are not subject to Chapter 3 withholding on interest that is not connected with a
U.S. trade or business if it is from:
- Deposits with persons carrying on the banking business;
- Deposits or withdrawable accounts with savings institutions chartered and supervised under federal or state law as savings and loan or similar associations, such as credit unions, if the interest is or would be deductible by the institutions;
- Amounts left with an insurance company under an agreement to pay interest on them.


Our Accounting department does not believe these parameters apply to us, so does that mean the interest we pay is subject to Chapter 3 withholding?

If so, should NRAs complete all of Part II? Only Line 9 and leave the special explanation in Line 10 blank? [b][/b]

Also, does this mean we should be withholding for an NRA that doesn't claim a treat benefit on their W 8 BEN?

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#2248348 - 01/28/21 09:47 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
BrianC Offline
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You are asking accounting questions in a compliance forum. This is a discussion for CPAs.
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#2248351 - 01/28/21 09:57 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
rlcarey Offline
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You have a withholding responsibility if you do not have a unexpired properly completed W-8BEN - that would be reported on a 1042-S for any non-resident alien on which you withheld. Of course a 1042-S is also require for any non-resident alien regardless of withholding if they are from a country that participates in the information exchange program.

Unless you bank a lot of foreign nationals - I am just saying - jumping through all of these recordkeeping and reporting hoops and the potential for IRS fines for failure to report properly is hardly worth the risk.
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#2248815 - 02/08/21 01:19 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
VermontBanker Offline
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My question was more geared toward the form, which I do think is more of a compliance issue.

I'm not sure how customers should fill out the Treaty section (Part II), and unfortunately most of our foreign customers are students here working the ski lifts, and will not have the knowledge to fill these out themselves. We have to be able to provide them some basic guidance.

I have seen some bank websites that suggest this section is not required for deposit interest, but I'm not sure where I see that in the instructions. So basically, my question is: does that section have to be filled out if someone is just receiving deposit interest? And if not, what part of the instructions indicates this?

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#2248820 - 02/08/21 02:14 PM Re: W-8 BEN and Closer Connection Exception VermontBanker
rlcarey Offline
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Galveston, TX
"unfortunately most of our foreign customers are students here working the ski lifts, and will not have the knowledge to fill these out themselves."

Then why in the world are you offering them interest bearing accounts. Just offer non-interest bearing DDA accounts and it solves all of your problems is my point. It is not like these individuals are going to be money markers for the bank anyway unless you expect them to overdraw their accounts for the extra non-interest fee income.

The answer to your question is no. Unless the interest income is related to a trade or business, claiming tax treaty status under Chapter 3 is not applicable.
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