As of January 1, 2001, the IRS requires U.S. financial institutions to obtain detailed documentation from their clients and apply stringent review procedures before they can relieve the U.S. 30-percent tax on investment income paid to non-U.S. persons ("NRA withholding"). The IRS also requires U.S. taxpayers with overseas accounts to be properly reported on IRS Forms 1099 or be subject to 31-percent backup withholding. For many U.S. financial institutions, these IRS requirements mean fundamental changes to the way they have traditionally handled NRA withholding and Form 1099/backup withholding from their clients.

The NRA withholding rules are very clear about what the IRS expects from financial institutions and their direct clients. The IRS also expects full compliance as it puts increasing reliance on valid documentation and withholding systems.