As I was cycling into work the other day, I, unfortunately, was thinking about the new IRS Form W-8BEN-E  (I do this sometimes) and a vision of Alex Trebeck popped into my head.  Alex said to me: “Mr. Dean, you are on Final Jeopardy and you are left with the category – US Taxation – one of the hardest categories we have here on Jeopardy.”  Alex went on with the Answer in Jeopardy fashion: “a Luxemburg investment fund which includes both U.S. and foreign investors.”  He then showed me a W-8BEN-E “Certificate of Status of Beneficial Owner for United States Tax Withholding (Entities)” complete with its 24 possible status categories under FATCA.  “Registered Deemed Compliant FFI”  – dodeedodo – “Entity Wholly Owned by Exempt Beneficial Owners” – dodeedodo – “Active NFFE,” “Passive NFFE”.

As my head swirled with these 24 choices – honk – Alex was back telling me time was up as I realized that I did not have enough information on the Luxemburg entity to make a reasoned choice.

Unfortunately, the tax world is not a television game show and making the wrong choices does not mean you don’t get a prize; making wrong choices means you may get penalized.  So as I look over this proposed Form W-8BEN-E and think about the whole wide world of foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) who will be responsible for having correct versions of these Forms on file, I can’t help but think that IRS may be overestimating the world’s capacity to make sense of their categories of FFIs, NFFEs and exempt entities, or at least to make sense of them in a world of finite time and resources.

Because after all its not only on Jeopardy that the dodeedodo finally comes to an end.

• The revised draft W-8BEN can be accessed here: http://www.irs.gov/pub/irs-utl/formw8benindividualexecirculation2.pdf
• The definitions of FFIs and NFFEs: Notice 2010-60 – Internal Revenue Service

Please get touch if you have any questions: g.dean@ustaxfs.com