Voluntary Compliance Program (VCP). The IRS has initiated a “Section 1441 VCP”. This program is available to certain withholding agents with respect to the withholding, payment, and reporting of certain taxes due on payments to foreign persons. Submissions under this program must be made before January 1, 2006. For information on the VCP, see Revenue Procedure 2004-59, which is on page 678 of Internal Revenue Bulletin 2004-42 at www.irs.gov/pub/irs-irbs/irb04-42.pdf.

Filing electronically. If you file Form 1042-S electronically, you will use the Filing Information Returns Electronically (FIRE) system. You get to the system through the Internet at fire.irs.gov.

Smaller partnerships and trusts. Special rules apply to certain smaller partnerships and trusts (Joint Account Provision) that meet certain conditions. The condition limiting the partnership or trust to receiving not more than $200,000 has been eliminated.

Dividends. The following items show the changes made to the provisions related to withholding on dividends. For more information, see Dividends. Dividends paid to Puerto Rico corporation. The tax rate on dividends paid after October 22, 2004, to certain corporations created or organized in, or under the law of, the Commonwealth of Puerto Rico is 10%, rather than 30%. Dividends paid by a real estate investment trust (REIT). For tax years beginning after October 22, 2004, a distribution by a REIT is treated as a dividend and is not subject to withholding under section 1445 as a gain from the sale or exchange of a U. S. real property interest if certain requirements are met. Dividends paid by a regulated investment company (RIC). Subject to certain exceptions, no withholding is required on interest-related dividends and short-term capital gain dividends paid by a RIC. This applies to dividends paid for tax years of the RIC that begin after December 31, 2004. Dividends paid by foreign corporations. For payments made after December 31, 2004, dividends paid by a foreign corporation are generally not subject to NRA withholding.

U.S. real property interest. . After December 31, 2004, the sale of an interest in a domestically controlled qualified investment entity is not the sale of a U.S. real property interest.

New tax treaties and protocol. The United States exchanged instruments of ratification for new income tax treaties with Japan and Sri Lanka and a new protocol for the income tax treaty with the Netherlands. The changes are reflected in the tax treaty tables near the end of this publication. Japan. The provisions for withholding tax at source are effective for amounts paid or credited after July 1, 2004. For all other taxes, the treaty is effective for tax periods beginning on or after January 1, 2005. An individual who claimed treaty benefits under Article 19 (teachers and researchers) or Article 20 (students and trainees) of the former treaty can continue to apply those provisions. A person entitled to benefits under the previous treaty with Japan can elect to have that treaty apply in its entirety for the 12-month period following the date the new treaty would otherwise apply. Sri Lanka. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after September 1, 2004. For all other taxes, the treaty is effective for tax periods beginning on or after January 1, 2004. Netherlands. The protocol is generally effective for tax periods beginning on or after January 1, 2005. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after February 1, 2005.

Note. This publication serves as the Small Entity Compliance Guide required by section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, P.L. 104-121.

Form W-8. There are four forms in the W-8 series. The form to use depends on the type of certification being made. As used in this publication, the term “Form W-8” refers to the appropriate document. For more information, see Documentation, later.

Electronic deposit rules. You must use the Electronic Federal Tax Payment System (EFTPS) to make electronic deposits of all depository tax liabilities you incur after 2004, if you meet either of the following conditions.

If you do not meet these conditions, electronic deposits are voluntary. For more information about depositing electronically, see Publication 966, Electronic Choices for Paying ALL Your Federal Taxes.

IRS taxpayer identification numbers for aliens. The IRS will issue an individual taxpayer identification number (ITIN) to an alien who does not have and is not eligible to get a social security number (SSN). An ITIN is for tax use only. It does not entitle an alien to social security benefits or change his or her employment or immigration status under U.S. law. For more information on ITINs, see U.S. Taxpayer Identification Numbers, later.

Hong Kong. Hong Kong and China continue to be treated as two separate countries for purposes of certain bilateral agreements, the Internal Revenue Code, and the Income Tax Regulations.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Specifically, it describes the persons responsible for withholding (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. In addition to discussing the rules that apply generally to payments of U.S. source income to foreign persons, it also contains sections on the withholding that applies to the disposition of U.S. real property interests and the withholding by partnerships on income effectively connected with the active conduct of a U.S. trade or business.