 Investors holding accounts at U.S. financial institutions must furnish prescribed documentation to the institution in order to establish their status as a foreign or domestic person and, if applicable, their entitlement to benefits under U.S. tax treaties. Under the rules, documentation must be validated by the institution in order to avoid audit exposure. Institutions must therefore implement validation procedures to ensure the documentation they receive from clients is correct based on specific criteria.
1441 MD3 – Mandatory Document Due Diligence – is a powerful web-based compliance tool that automates the validation process for Forms W-8 and W-9. It is designed as a virtually "fool-proof" application. Through the use of MD3, institutions will:
- Reduce processing delays
- Reduce costs
- Reduce the risk of errors
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MD3 utilizes an interactive screen requiring the user to check boxes corresponding to a series of validation questions by looking at the customer's form. Defective documents are easily detectable thanks to the application's comprehensive tax logic. The application generates a "validated" or "reject" message with an explanation, if necessary, which doubles up as a compliance record available for audit (e.g., audits by the IRS or external audits). The system includes an e-mail feature that informs the responsible account representative that a customer's form has been rejected, reason for rejection and why the form must be corrected. Archived validation results are stored in a database, from which data can be retrieved for use in tax and management reports.
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