Who Is Considered a Specified U.S. Person?

The term “Specified U.S. Person” is a classification from the Foreign Account Tax Compliance Act (FATCA). This law was enacted to address tax evasion by requiring foreign financial institutions to report the holdings of their U.S. clients to the Internal Revenue Service (IRS). The “Specified U.S. Person” designation is how these institutions identify which individuals and entities are subject to this reporting.

Defining a U.S. Person

To understand the “specified” designation, one must first meet the broader definition of a “U.S. Person” under the Internal Revenue Code, which includes both individuals and legal entities. For individuals, the definition applies to all U.S. citizens, regardless of where they live. An individual who is not a citizen can still be a U.S. person if they are a resident for tax purposes.

U.S. tax residency for non-citizens is established through one of two tests. The first is the “green card test,” which classifies any individual who holds a lawful permanent resident card as a U.S. person. The second is the “substantial presence test,” which requires an individual to be physically present in the United States for at least 31 days during the current year and a total of 183 days over a three-year period, calculated using a weighted formula.

The definition of a U.S. Person also extends to domestic entities, including corporations and partnerships created or organized in the United States. A trust is considered a U.S. person if a U.S. court can exercise primary supervision over its administration and one or more U.S. persons control its substantial decisions. The estate of a decedent who was a U.S. citizen or resident at the time of death also falls under this definition.

Identifying a Specified U.S. Person

The general rule under FATCA is that any U.S. Person, whether an individual or an entity, is automatically considered a Specified U.S. Person. This default status applies to the vast majority of U.S. individuals and most privately held U.S. entities, such as family trusts, partnerships, and closely held corporations. The important distinction, therefore, is not in how one becomes a Specified U.S. Person, but in understanding the exceptions that remove a U.S. Person from this category. Unless an individual or entity fits into a defined exemption, they will be treated as a Specified U.S. Person for tax reporting purposes.

Exceptions to the Definition

The tax code provides numerous exceptions for entities considered to pose a low risk for tax evasion, such as a corporation whose stock is regularly traded on an established securities market. This exemption also applies to any corporation in the same affiliated group as a publicly traded company.

Organizations that are exempt from taxation under Section 501 of the tax code are not considered Specified U.S. Persons. This category includes a wide range of non-profit entities, such as charities, educational organizations, and religious institutions. Individual retirement plans are also excluded from the definition.

Governmental bodies are another major category of exempt U.S. Persons. This includes the United States government, any of its agencies, and any state or the District of Columbia. The exception also covers political subdivisions of a state, such as counties and municipalities, and their wholly owned agencies.

The financial industry also contains several exceptions. The following are not considered Specified U.S. Persons:

• Banks, real estate investment trusts (REITs), and regulated investment companies (RICs)
• Common trust funds and certain trusts that are exempt from tax under Section 664
• Brokers and dealers in securities, commodities, or derivative financial instruments registered under U.S. or state law

Certification and Reporting Obligations

Both U.S. and foreign financial institutions must collect information to determine if an account is held by a Specified U.S. Person, which is a standard part of the account opening process. The primary document for this certification is Form W-9, Request for Taxpayer Identification Number and Certification. When completing a Form W-9, you attest under penalties of perjury that the Taxpayer Identification Number (TIN) provided is correct and confirm your U.S. person status. Failure to provide this certification can result in backup withholding on certain payments or account closure.

The form contains instructions for exemptions. If you are a U.S. person who qualifies for an exemption, you must enter the appropriate code on the Form W-9. This code signals to the financial institution that you are not a specified U.S. person and are not subject to FATCA reporting. In an international context, foreign financial institutions may request similar certifications on their own documents or on forms from the W-8 series, such as Form W-8BEN-E for a U.S.-owned foreign entity.