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How should we report mortgage interest paid by nonresident aliens to the IRS? – IBA Compliance Connection

IBA Compliance Connection

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How should we report mortgage interest paid by nonresident aliens to the IRS?

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The IRS provides guidance for reporting mortgage interest paid by nonresident aliens within the United States in its instructions for Form 1098.

For mortgage loans secured by property located in the United States, you must request a Form W-8 and report the interest based on the payer’s applicable Form W-8. If the interest is paid outside the United States, the bank must satisfy the IRS’s standard for documentary evidence for offshore obligations outlined in Section 1.6049-5(c) of its regulations, including obtaining “acceptable documentary evidence” and establishing procedures to obtain, review, and maintain such evidence.

For resources related to our guidance, please see:

  • IRS, Instructions for Form 1098, page 3 (January 2022) (“You must file Form 1098 to report interest paid by a nonresident alien only if all or part of the security for the mortgage is real property located in the United States.

Report the interest based on the following.

  • If the interest is paid within the United States, you must request from the payer the applicable Form W-8 (withholding certificate) as described in Regulations section 1.1441-1(e)(1).
  • If the interest is paid outside the United States, you must satisfy the documentary evidence standard described in Regulations section 1.6049-5(c).”)
  • IRS Regulations, 26 CFR 1.1471-3(c)(5)(i) (“Acceptable documentary evidence supporting a claim of foreign status includes the following types of documentation if the documentation contains a permanent residence address for the person named on the documentation . . . (A) Certificate of residence. . . . (B) Individual government identification. . . . (C) QI documentation. . . . (D) Entity government documentation. . . . (E) Third-party credit report.”)
  • IRS Regulations, 26 CFR 1.6049-5(c)(1)(ii) (“A payor may rely on documentary evidence if the payor has established procedures to obtain, review, and maintain documentary evidence sufficient to establish the identity of the payee and the status of that person as a foreign person; and the payor obtains, reviews, and maintains such documentary evidence in accordance with those procedures.”)