On February 27, 2019, LB&I issued a memorandum (LB&I-04-02019-002) outlining a new program administred by the Foreign Payments Practice (“FPP”) that allows withholding agents to report and correct failures under Chapter 3 or 4. The program and its procedures arose based upon the frequency with which taxpayers contact FPP regarding potential corrections for Chapter 3 and 4 withholding compliance failures. The program establishes FPP as the central point of contact for withholding agents wishing to submit delinquent withholding tax returns, remit unpaid taxes, and seek request penalty relief. The program is available to withholding agents other than those that are qualified intermediaries, withholding foreign partnerships, and withholding foreign trusts, but withholding agents may not participate in the program if they are currently under IRS audit for the delinquent filings, or if they are before IRS Appeals or in litigation related to issues involving noncompliance with Chapters 3 or 4 of the Code. Although multiple years may be included in a single submission, withholding agents may only avail themselves of the program one time.
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Chapter 3
IRS Delays New Withholding Requirement for Dispositions of Publicly Traded Partnership Interests
In response to public comments, the IRS today issued Notice 2018-08 that delays indefinitely withholding under new Code section 1446(f) with respect to dispositions of certain publicly traded partnerships. Section 13501 of the enacted tax reform bill added a new Code section 1446(f) to impose a 10% withholding requirement on…
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Temporary FATCA Coordination Regulations Bring U.S. Source Gross Transportation Income Saga to a Close
On Friday, December 30, 2016, the IRS and Treasury Department released over 600 pages of new final, temporary and proposed regulations under Chapter 4 (FATCA), Chapter 3, and Chapter 61 (see earlier coverage). The four packages finalize the temporary regulations issued in 2014 and make additional changes based on comments received by the IRS. One issue addressed by the temporary FATCA coordination regulations issues under Chapter 3 addresses the outstanding question of whether withholding agents must document the foreign payees of U.S. source gross transportation income (USSGTI) and withhold under Chapter 3. The temporary regulations amend the regulations under Section 1441 to specifically exempt USSGTI from amounts subject to withholding.
Although it informally suggested that withholding agents were not required to document or withhold 30% on payments of USSGTI, the IRS has been reluctant to issue formal guidance. To this end, IRS Publication 515 provides that such amounts are not subject to Chapter 3 withholding under Section 1441 or 1442. However, Sections 1441 and 1442 generally require withholding agents to withhold 30% on payments subject to the tax imposed by Sections 871 and 881 (i.e., FDAP income). However, payments of gross transportation income that is U.S. source because the transportation begin or ends (not both) in the United States are subject to a 4% excise tax under Section 887 that is self-imposed by the payee, unless an exception applies. Section 887(c) provides that the 30% gross tax applicable to most U.S. source income of foreign persons (other than income effectively connected with a U.S. trade or business) does not apply to transportation income.
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Regulations Limiting Refunds and Credits for Chapter 3 and Chapter 4 Withholding Due Soon
John Sweeney, Branch 8 Chief in the IRS Office of Associate Chief Counsel International, said on June 2 that proposed and temporary regulations limiting refunds and credits claimed by nonresident alien individuals and foreign corporations for taxes withheld under Chapter 3 and Chapter 4 of the Code will be released…
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