In March 2024, the Internal Revenue Service (IRS) revealed a revised version of Form W-9, Taxpayer Identification Number and Certification Request, marking a significant update since its last revision in 2018. This change introduces new reporting requirements, particularly affecting flow-through entities such as trusts and estates. As a trust and estate attorney, understanding these modifications is essential to ensure compliance and advise clients accurately. This article examines the specifics of the updated Form W-9, its implications for trusts and estates, and whether these entities must file their own Forms W-9.

The gist of the update

The revised Form W-9 now includes a new requirement for flow-through entities, adding a specific line (Line 3b) for these entities when they have direct or indirect foreign partners, owners, or beneficiaries. This supplement is intended to simplify the process for determining IRS reporting requirements, particularly with respect to the reporting of K-2 and K-3 programs for internationally significant tax entities.

Critical changes to note:

New line 3b. This line is specifically designed for current entities such as partnerships, trusts or estates with foreign partners, owners or beneficiaries. Must be completed when such entity issues a Form W-9 to another flow entity.

Clarification for LLC with One Member. The instructions for Form W-9 have been updated to remove confusing references to single-member LLCs. Now, the form clarifies that a disregarded entity should not fill out the form in its own name, but rather in its owner's name.

Implications for Trusts and Estates

The submission of line 3b on Form W-9 has direct implications for trusts and estates, especially those involved in transactions or relationships with other current entities. This change requires a more detailed examination of the entity's structure and its beneficiaries so that the form can be filled out accurately.

Increased reporting requirements. Trusts and estates with foreign beneficiaries now have an added layer of reporting to consider. This is especially important for entities that engage in transactions that require Form W-9, as they must disclose their status with respect to foreign payees.

Clarification and Compliance. The updated form provides clearer guidance for trusts and estates, helping these entities comply with IRS reporting requirements more effectively. This clarity benefits entities navigating the complexities of tax reporting and withholding.

Recharge requests

A critical question arising from these updates is whether trusts and estates must file their own W-9 forms. According to the IRS, previously collected Forms W-9 do not expire or need to be refreshed due to the release of a new version. However, there are specific scenarios where recharging may be necessary:

There is a specific reporting exception if the trust or estate is considered to be a domestic partnership, but to be considered a domestic partnership, the trust or estate must affirmatively state that:

1. The trust has no or limited foreign activity during the tax year;
2. All direct partners (ie beneficiaries) are US persons for domestic ownership and beneficiary requirements;
3. All partners/beneficiaries are notified that they will not receive a K-3 Program (reporting their share of international activity); AND
4. No partner/beneficiary has requested a K-3 plan. The trust or estate will need to return their W-9 to qualify for this specific exemption.

The March 2024 revision of IRS Form W-9 introduces significant changes for flow-through entities, including trusts and estates. The addition of line 3b requires a closer look at beneficiaries and entity statuses, ensuring accurate reporting and compliance with IRS requirements. While not all trusts and estates will need to file their own W-9 forms, staying informed about these changes and understanding when a new filing is warranted is essential for legal professionals advising in this area. Consultation with a tax professional or attorney specializing in trusts and estates is recommended to effectively navigate these updates.