Definition: Interest that appears to qualify as portfolio interest based on the above definition will not qualify as portfolio interest if it is contingent interest or if is paid to any of the following certain persons: Banks receiving an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business. This does not include cases where the interest is paid on an obligation of the United States. A 10-percent shareholder/ A controlled foreign corporation from a related person.  

Definition Penalties applicable to CTW information and tax returns for failure to file, failure to file correctly and failure to pay. Intentional failure to file correctly can result in a penalty of 10% of gross income even when no tax is due. If a Withholding Agent fails to make a required deposit within the time prescribed, a penalty is imposed on the underpayment (the excess of the required deposit over any actual timely deposit for a period). The Service Center imposes penalties for discrepancies between when

Definition: Original Issue Discount (OID) is the excess of the stated redemption price at maturity over the issue price. In simpler terms, it is when a debt instrument is issued for an amount that is less than its face amount.  The obligations are sold at a discount upon original issue or they carry stated interest that is payable only at maturity. OID may be subject to Chapter 3 withholding and reporting. Reference: IRC s. 1273(a)(1), Treas. Reg.  s. 1.1273-1(c)(5), 1.1441-2(b)(3)(ii), 1.1473-1

Definition: An obligation is in registered form if the obligation meets one of the following requirements: The obligation is registered (or a registration-required obligation) as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder The right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or The obligation is registered as to both principal and stated

Definition: Nonresident (NRA) reporting is required for amounts of U.S. source fixed, determinable annual, or periodical (FDAP) income paid to non-U.S. persons.  These amounts are subject to reporting on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, including persons presumed to be non-U.S. persons and even if no amount is deducted and withheld from the payment. In addition, NRA reporting requires the filing of an information return, Form 1042-S, that reports amounts paid and withheld, and a Form 1042 that reports the aggregate

Definition: Foreign targeted registered obligations must meet two requirements: The obligation must be registered “as to both principal and any stated interest” with the issue or its agent. The right to the principal and stated interest may be transferred only through a book entry system maintained by the issuer or its agent.   Citation: IRC § 1.1275-3 – OID information reporting requirements.

Definition A bearer obligation is foreign targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a U.S. person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any U.S. person who holds the obligation will be subject to limits under the U.S. income tax laws.   Citation: IRC § 1.1275-3 – OID information

Definition Contingent Interest is either: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person Income or profits of the debtor or related person Any change in value of any property of the debtor or a related person Any dividend, partnership distributions, or similar payments made by the debtor or a related person. Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations.   Contingent interest does not include