Tax & Accounting Blog

What Is a MOU in Relation to Electronic Forms W-8 and W-9?

1042-S, 1099, 6050W, Cost-Basis Reporting, Document and WorkFlow Management, Information Reporting for Wealth Management, International Reporting & Compliance, ONESOURCE, Tax Information Reporting, TIN Compliance, Trust Tax, W-8 & W-9 Foreign Reporting, Withholding Management September 1, 2011

A Memorandum of Understanding (MOU) is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentleman’s agreement.

A MOU for an electronic solution that collects Forms W-8 and W-9 is an agreement between the IRS and the institution collecting and maintaining Forms W-8  and W-9, which provides the institution with a type of insurance that the IRS is in agreement with their solution and approach in collecting electronic Forms W-8 and W-9.

It is not mandatory to have a MOU if you collect Forms W-8 and W-9 electronically; however, for peace of mind, it is highly recommended. If, under audit, you are using an electronic solution to collect documentation that has not gone through an MOU and you discover there is a problem, all of your documentation could be affected, resulting in a 100% failure rate.

Unfortunately, MOUs are not provided to software providers who have electronic W-8 and W-9 solutions. Instead MOUs have to be granted for the user of the application.

In order to obtain an MOU, you should follow the procedures described below.

  1. (Optional) Pre-Submission Conference. Prior to submitting a written proposal, the withholding agent may request a pre-submission conference to discuss its proposed system.
  2. Written submission. The withholding agent must submit a written submission that describes the proposed system in detail and explains how the proposed system meets the requirements of Treas. Reg. §1.1441-1(e)(4)(iv). The submission must identify the withholding agent, provide the name and contact information for a single contact person and outline a timeline for implementation of the system. The submission must be sent to the IRS Online Form W-8 Coordinator.
  3. Conferences. The Online Form W-8 Coordinator may request one or more conferences with the withholding agent to obtain additional information, make comments and discuss IRS comments and concerns about the proposed system. Conferences can be either face-to-face or via web meetings.
  4. Demonstration of System. During the process of developing the system, the Online Form W-8 Coordinator will request that the withholding agent provide one or more demonstrations of various aspects of its system.
  5. Memorandum of Understanding. When the Online Form W-8 Coordinator is satisfied that the system meets the requirements of Treas. Reg. §1.1441-1(e)(4)(iv) and adequately addresses the concerns of the IRS, the IRS will execute a memorandum of understanding with the withholding agent to coordinate the IRS and the withholding agent’s mutual interests and uses of the system and any requirements or conditions regarding their coordination.

Once received, an MOU lasts for six years, unless significant changes occur to Treas. Reg. §1.1441 (e.g., new form versions).