Rev. Rul. 68-237

Advice has been requested whether under section 1.1441-5 of the Income Tax Regulations a United States bank may honor a request by a foreign bank that income tax not be withheld from income from certain securities held in the name of the foreign bank because the actual owner of the securities is a United States citizen residing abroad.

A United States bank maintained an omnibus account for a foreign bank and withheld United States income tax under section 1441 of the Internal Revenue Code of 1954 on the basis of the status of the particular foreign bank for whose account the securities were held. Instructions for delivery and receipt of securities, as well as for the disposition of the income therefrom, were accepted only when received from the foreign bank.

The foreign bank requested that the United States bank not withhold income tax from income from certain securities which were held in the name of the foreign bank because the actual owner of the securities was a United States citizen residing abroad. It furnished the actual owner's affidavit disclosing his name, address, and United States citizenship, and a list of the securities he owned.

Section 1.1441-5(a) of the regulations provides, in general, that an individual's written statement that he is a citizen or resident of the United States may be relied upon by the payer of the income as proof that such individual is a citizen or resident of the United States. This section sets forth the minimal form of proof that a withholding agent may accept from an individual claiming United States citizenship or residence and not be held liable for the tax required to be withheld under section 1441 of the Code. See also section 1461 of the Code.

Section 1.1441-5 of the regulations is properly applied on a permissive basis. Thus, a payer of income may elect whether to accept an individual's proof of United States citizenship or residence.

Accordingly, with respect to each payment of income from the securities to the foreign bank, it is within the discretion of the United States bank whether to accept the actual owner's affidavit furnished by the foreign bank that discloses the name, address, and United States citizenship of the ultimate recipient of the income paid to the foreign bank. If the United States bank accepts and relies on such an affidavit of ownership furnished by the foreign bank, the United States bank as payer of the income will not be held liable by the Internal Revenue Service for the tax under section 1461 of the Code in the event of a subsequent disclosure that the ultimate recipient was, in fact, a nonresident alien and that tax should have been withheld under section 1441 of the Code.