Rev. Rul. 70-175

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 1529, C.B. I-2, 168 (1922).

The question presented is whether the taxpayer, under the circumstances described below, will be held liable or responsible for misstatements made by bond owners on ownership certificates required by section 1.1461-1 of the Income Tax Regulations and, therefore, become liable for the amount of tax required to be withheld by section 1441 of the Internal Revenue Code of 1954, relating to the withholding of tax on nonresident aliens.

The taxpayer, a domestic bank, acts as paying agent for numerous corporations with regard to their bond obligations and in such capacity pays large sums monthly in bond interest upon receipt of bond interest coupons from owners of the bonds. Some of the bond owners are nonresident aliens. However, due to misstatements made by some of these bond owners on their ownership certificates, the tax required to be withheld under section 1441 of the Code was not withheld by the taxpayer.

Section 1441(a) of the Code provides, in pertinent part, that, with certain exceptions, all persons, in whatever capacity acting, having control, receipt, custody, disposal, or payment of any of the items of income specified in section 1441(b) of the Code, which includes interest, sourced within the United States, of any nonresident alien individual shall deduct and withhold from such items a tax equal to 30 percent thereof.

Section 1461 of the Code provides, in part, that every person required to deduct and withhold the tax imposed by section 1441(a) of the Code is thereby made liable for such tax.

Section 1.1461-1(b) of the regulations requires, in pertinent part, that nonresident alien individuals shall, when presenting interest coupons for payment, file ownership certificates. The ownership certificates shall show the name and address of the obligor, the name and address of the owner of the obligations, and other information as set forth in section 1.1461-1(d) of the regulations. Such information would be obtained from the bond owner.

It is held that the taxpayer in the instant case, as withholding agent, is responsible for the proper execution of, and complete data on, an ownership certificate, but is not liable or responsible for misstatements made by the bond owners.

I.T. 1529 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.