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Beneficial Owner

Definition:

The beneficial owners of a simple trust are the beneficiaries of the simple trust.

Withholding and Reporting:

A U.S. simple trust is required to withhold under Chapter 3 as a withholding agent on the distributable net income includible in the gross income of a non-U.S. beneficiary if that distributable net income is an amount subject to withholding under Chapter 3 (U.S. source FDAP income).  The U.S. simple trust must withhold when it makes a distribution to the non-U.S. beneficiary.  If the U.S. simple trust is required to, but does not, distribute the income to a non-U.S. beneficiary, then the U.S. trust must withhold on the non-U.S. beneficiary’s share at the time the income is required to be reported on Form 1042-S. A non-U.S. simple trust must file a Form 1040NR when its beneficiaries do not satisfy all of their U.S. withholding tax obligations.  If a simple trust does not have any non-U.S. beneficiaries, then it is not required to file Form 1040NR.

Documentation:

Because a simple trust is a flow through entity, a non-U.S. simple trust must provide an intermediary withholding certificate (Form W-8IMY) to any withholding agents that will pay reportable income to its beneficiaries, along with withholding certificates for each beneficiary and an allocation statement that provides enough information for the withholding agent to report the income on a Form 1042-S.  The non-U.S. simple trust will be responsible for reporting any information not reported by the withholding agent on Form 1042-S (for non-U.S. beneficiaries) or Form 1099 (for U.S. nonexempt recipients that are beneficiaries).

 

Citations: Treas. Reg. § 1.1441-5 – Withholding on payments to partnerships, trusts, and estates. IRC § 651. Deduction for trusts distributing current income only Treas. Reg. § 1.651(a)-1. Simple trusts; deduction for distributions; in general. Treas. Reg. § 1.1441-1 – Requirement for the deduction and withholding of tax on payments to foreign persons.