The W-9 form has just been revised. Does anyone have any ideas as to how to handle exemptions for resident aliens under provisions of W-9 rules?

W-9 now states that a U.S. resident alien who is relying on an exception contained in the saving clause of a tax treaty to claim an exemption from U.S. tax on certain types of income must attach a statement that specifies five items: 1) treaty county; 2) treaty article addressing the income; 3) the article number (or location) in the tax treaty; 4) the type and amount of income that qualifies for exemption; and 5) sufficient facts to justify exemption.

Our system requires the following alien documentation (and I am sure we all in one way or another document this info):
alien - yes or no
alien country (and various foreign address fields)
alien recipient code - individual, corp, government, etc.
tax exemption code - income w/US trade, exempt under IRS code, exempt under tax treaty, portfolio interest exemption

Do we need to forget about exemptions and backup withhold on all aliens? Or are we generally OK in marking them as exempt under IRS tax code.

Opening accounts used to be much easier!

The W-9 is used by U.S. persons, which includes resident aliens, in connection with many types of income. Recent changes to the form's instructions are intended to affect documentation connected with some types of income, but not bank deposit interest.

The revised instructions are for the benefit of nonresident aliens who become resident aliens. With certain types of income, the resident alien would have to claim treaty benefits in order to avoid "source withholding" at the rate of 30% on some types of U.S. income. (This is not backup withholding.)

However, bank deposit interest is exempt from source withholding - there is no reason for any alien (resident or nonresident) to claim treaty benefits when opening a deposit account.

On a related point, I am a bit befuddled by your system's menu choice of "alien." The IRC talks about U.S. Persons and Non U.S. Persons. (The proposed CIP regulation used the same terms, but defined them differently.) The IRC considers a resident alien to be a U.S. person. It considers a nonresident alien to be a Non U.S. Person. A properly documented account for a nonresident alien is exempt from information reporting and backup withholding. The account of a resident alien is not exempt.

Obviously, it's the adjective modifying the term "alien," not the term itself, where the IRC makes distinctions. My pure guess: your system equates "alien" with "nonresident alien."

Thanks, Ken. That clears up the treaty language.

I think you are correct about the alien field being used to designate a nonresident alien. We have a "date alien certified" field which we use to key in date W-8 form was signed. We still need to make a few changes in the system to help us with W-8 form expirations (the system does not tie in whether the nonresident alien has provided us with a TIN); but I am waiting until final CIP rules are issued to discuss our needs with our vendor. I am hoping we will see some clarification on the discrepancy in "U.S. Person" in the final rules. I know many of us included this topic in our comment letters.

Thanks for your help. You're AWESOME!