Updated Form W-9 Adds Requirement for Entities to Indicate Foreign Partners, Owners, or Beneficiaries

The IRS released a revised version of Form W-9 in March of 2024 -- the first update to the form since 2018. Of particular note is the addition of new line 3b that requires flow-through entities to indicate if they have foreign partners, owners, or beneficiaries.

Form W-9 Explained

Form W-9 is used by U.S. persons (including resident aliens) to provide their Taxpayer Identification Number (“TIN”) to the requesting person when that person is required to file an information return with the IRS. In this situation, the requesting party is making a reportable payment to the taxpayer, though it may be used for other information returns as well. Foreign persons, including nonresident aliens, use Form W-8.

Generally, Form W-9 is used to provide an employer or other party with the information needed to issue a type of Form 1099 at the end of the year. Instances where a W-9 may be used include:

• Non-employee (i.e., independent contractor) income,
• Proceeds from real estate transactions,
• Mortgage interest payments,
• Cancellation of debt, and
• IRA contributions.

Addition of Line 3b

Previously, this form required taxpayers to provide their name; any business or disregarded entity names used, if different; their legal address (P.O. boxes are not allowed); their TIN, either as a social security number or employer identification number (EIN), and their tax classification. This revision adds line 3b, which requires any taxpayer that selected a tax classification of partnership, trust or estate, or LLC taxed as a partnership, to indicate whether it has any foreign partners, owners, or beneficiaries. It must be checked by any partnership, trust, estate, or LLC taxed as a partnership that receives either:

• A Form W-8 from any partner, owner, or beneficiary that established foreign status, or
• A Form W-9 from any partner, owner, or beneficiary that checked the box on line 3b.

The instructions clarify that any flow-through entity with direct or indirect foreign partners, owners, and/or beneficiaries must check this box when it provides its Form W-9 to another flow-through entity in which it has an ownership interest. The stated purpose of this addition is to provide the flow-through entity with information on its indirect foreign partners, owners, or beneficiaries in order to satisfy any other reporting requirements. The instructions specifically caution that partnerships that provide a Form W-9 and check the box on line 3b may also be required to complete Schedules K-2/K-3 with their Form 1065. Failure to complete line 3b may result in penalties.

Timing of Changes

The new Form W-9 is effective immediately and should be used going forward. Only those taxpayers who are providing or collecting a new Form W-9 will be required to use the revised version. Taxpayers and withholding agents are not required to file or collect new Forms W-9 solely because of the revision.

Observation: Taxpayers and withholding agents may still wish to request the new form to identify any additional reporting requirements.

Taxpayers who believe they may be affected by this revision should reach out to a trusted tax advisor.