Foreign Shareholder - Wittholding?

[miatax]

I have a client who has owns majority stock in a U.S. company that he operates. He is a shareholder and a U.S. Resident. The company also has a foreign minority shareholder with no U.S. TIN. If the U.S. Company makes a payment to him, these amounts are accrued and reported on a 5372 but does there need to be backup withholding when the payment is actually made? Does it make a difference with respect to the withholding if payment is for for services (consulting) or a distribution?

[kcjenkins]

http://www.irs.gov/efile/article/0,,id=98145,00.html

Should I backup withhold on a payee who is a nonresident alien?

Yes. A nonresident alien is subject to backup withholding unless you have a signed Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or W-8, Certificate of Foreign Status, on file. Nonresident aliens are subject to backup withholding, and identified via Form W-8BEN.

Read Pub 1231 for more detail, and to give you what you need to convince your client.