September 21, 2011

TO: Distribution

FROM: Burt, Staples & Maner, LLP

RE: Faxed and Scanned Forms W-8 Does New IRS Guidance Offer Hope?

It is no secret to withholding agents that the IRS typically treats a customer or counterparty providing a faxed or
scanned Form W-8 as "undocumented" and will try to assess "underwithholding" if an original form cannot be
collected. An IRS Chief Counsel Advice ("CCA") published on September 16, 2011, calls into question the basis
for the IRS audit position and offers hope to withholding agents considering a challenge to any assessed
"underwithholding" either in IRS Appeals or litigation.

Summary of CCA 201137011: The CCA arose, not in the withholding area, but in the context of fuel excise tax
certifications. However, the analysis is relevant to determining the legitimacy of any faxed IRS form. The CCA

There is nothing that legally prohibits the Service from accepting faxed, scanned, electronic, or digital
signatures. Whether to accept signatures that are not original is a business decision for the Service.

The CCA goes on to note that the IRS faces significant litigation hazards if the IRS rejects faxed or scanned
documents where "a court may find sufficient evidence authenticating the document and reverse the Service's
rejection of the document." A court can make this determination under its own evidentiary standards such as
Federal Rule of Evidence 901.

Litigation Hazards for the IRS: The current IRS audit position is inherently open to challenge. One must infer
from the relevant regulations that faxed and scanned Forms W-8 are not acceptable -- there is no explicit rule in the
regulations requiring original Forms W-8 (although there is a preamble statement rejecting faxed Forms W-8.) In
addition, a withholding agent potentially could muster all manner of evidence to authenticate a faxed or scanned
Form W-8: account opening records; know-your-customer/ anti-money laundering documentation; contractual
agreements; entity formation documentation; etc. A court faced with an ambiguous rule and abundant evidence
supporting the authenticity of faxed and scanned Forms W-8 could find it difficult to rule in the IRS' favor.

Change in IRS Position? IRS executives have stated publicly that they are reconsidering the position. Some IRS
agents have even dropped this issue in recent audits that we have been handling. One can hope a permanent change
soon will be implemented.

Recommendation: The CCA provides withholding agents with an excellent position to challenge the rejection of
faxed and scanned Forms W-8. A withholding agent should consider the strength of the evidentiary support for
authenticating such documentation if it decides to proceed to IRS Appeals or litigation.

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