Substitute Forms W-9

Who is Impacted?


Payors and withholding agents that make payments of reportable income will be interested in a quick refresher in the rules for using a substitute Forms W-9, Request for Taxpayer Identification Number and Certification.


What changed?


Although nothing changed, sometimes it is important to review the rules and confirm that everything continues to be in compliance. Forms W-9 are probably one of the more widely requested withholding certificates. One part that is somewhat new, but continues to be a bit confusing, are the Foreign Account Tax Compliance Act exemption codes. This article walks through a refresher of the rules and how to manage some of these awkward issues.


Payors and withholding agents are allowed to use their own Forms W-9, which are not the official Internal Revenue Service (IRS) published Forms W-9. These forms are called substitute Forms W-9. In order to be sure that the substitute Form W-9 is reliable, a few items must be in place.


Substantially similar content.


The content and wording of the substitute form must be substantially similar to the official IRS Form W-9. The current revision is as of October 2018. Once the IRS publishes an updated revision, it is important to review the new revision for any additions, wording changes or deletions that must be included in the substitute, so that it has substantially similar content.

Incorporating the substitute form with other forms or documents.


It is acceptable to incorporate a substitute Form W-9 with other business forms and documents that are used customarily. This includes bank account signature cards, subscription documents, vendor agreements, and other onboarding types of documentation.

Certification requirements.

This requirement is the most important! The certifications on a substitute Form W-9 must clearly state that under penalties of perjury:

  1. The payee’s taxpayer identification number is correct,

  2. The payee is not subject to backup withholding due to failure to report interest and dividend income,

  3. The payee is a U.S. person

  4. The FATCA code entered on the form (if any) indicating that the payee is exempt from FATCA reporting is correct.


It is this last certification that is a little awkward. What if a payor only makes payments of amounts subject to withholding under chapter 3 (non-resident alien withholding and reporting) and no withholdable payments under chapter 4 (FATCA)? The substitute form rules tell us that if a payor or withholding agent is not collecting a FATCA exemption code, it can omit that field from the substitute Form W-9 and may notify the payee that item 4 does not apply. But, what does this mean? Is it okay to omit the FATCA exemption code all together and tell the payee not to worry about Item 4 in the certification? Does this boarder on providing tax advice? This gets hairy when using an electronic Form W-9 and having to request authentication for each certification. We have some precedent and standards for pre-FATCA electronic Forms W-8BEN, but not as much for Forms W-9. This is something to consider when implementing electronic withholding certificates and substitute Forms W-9. Watch for our upcoming article on electronic withholding certificates!


Instructions.


Payors and withholding agents using a substitute form must provide the Form W-9 instructions to the payee only if the payee requests them. An exception to this rule is where the IRS has notified the payee that backup withholding applies. In this case the payor or withholding agent must instruct the payee, either orally or in writing, to strike out the language in the certification that relates to underreporting. Here, the words ‘defined below’ in the certification can be replaced with ‘defined in the instructions’ for item 3 of the Certification on Form W-9 when the instructions will not be provided to the payee except upon request.


When providing instructions on a substitute Form W-9, be sure that they are in a manner similar to the official form.


Signature line.


If using a separate signature line that is only for the certifications, then the certifications must be stated clearly.


If using a single signature line for the required certifications and other provisions contained in the document, then:

  • The certifications must be highlighted, boxed, printed in bold-face type, or presented in some other manner that causes the language to stand out from all of the other information on the substitute form.

  • Immediately above the signature line, the following statement must be included and must stand out in the same manner as the certifications in the first bullet: "The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding."


Do not use a substitute Form W-9 that requires the payee, by signing, to agree to provisions unrelated to the required certifications.

Do not imply that a payee may be subject to backup withholding unless the payee agrees to provisions on the substitute form that are unrelated to the required certifications.

How to Implement?

Payors and withholding agents choosing to use a substitute Form W-9 should consider the following:

  • Keep checking for new IRS revisions to Form W-9 to confirm that the substitute is substantially similar to the official IRS version.

  • If using an electronic Form W-9, confirm that it is compliant with the rules for substitute forms and electronic receipt of Forms W-9.

  • Confirm that your instructions to any substitute Forms W-9 are compliant with the rules for providing instructions.

  • Never alter the certifications unless explicitly allowed in the rules or IRS guidance. • Update process and procedure manuals to incorporate any changes required.

  • Update training materials and presentations to staff.

  • Confirm your process and procedure manual includes an approach to call back and replace any documents that contain a substitute Form W-9 when changes are required, such as account opening forms.


Do you use a substitute Form W-9? What are your challenges in doing so? Add your insight to the comment section or email us!


Resources

Instructions to the Requestor of Form W-9 (Rev. October 2018)

Rev. Proc. 83-89,1983-2 C.B. 613; amplified by Rev. Proc. 96-26, which is on page 22 of Internal Revenue Bulletin 1996-8 at IRS.gov/pub/irs-irbs/irb96-08.pdf.


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THIS DOCUMENT CONTAINS GENERAL INFORMATION ONLY AND IS NOT A SUBSTITUTE FOR ACCOUNTING, TAX, OR ANY OTHER PROFESSIONAL ADVICE OR SERVICES. BEFORE MAKING ANY DECISION OR TAKING ANY ACTION THAT MAY AFFECT YOUR BUSINESS, YOU SHOULD CONSULT A QUALIFIED PROFESSIONAL ADVISOR

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