IRS Updates Nonresident Withholding Tax Guide: An Article Authored by Paul Oliveira, CPA from KLR - Accounting Firm Boston, Massachusetts, Providence, Rhode Island

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IRS Updates Nonresident Withholding Tax Guide

posted Feb 23, 2015 by Paul Oliveira, CPA

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The Internal Revenue Service (IRS) released revised Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Although the publication is primarily for use in 2015, it also includes information relevant to 2014.

Publication 515 provides guidance for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments and international organizations.

The topics discussed in the publication include:

  • The persons responsible for withholding (withholding agents),
  • The types of income subject to withholding,
  • The information return and tax return filing obligations of withholding agents,
  • Withholding by a partnership on its income effectively connected with a U.S. trade or business that is allocable to its foreign partners,
  • Withholding on the transfer or distribution of a U.S. real property interest under the Foreign Investment in Real Property Tax Act (FIRPTA), and
  • How to get tax help from the IRS.

Revised Publication 515 includes a discussion of new rules regarding:

  • The Foreign Account Tax Compliance Act (FATCA) withholding requirements,       
  • The temporary regulations coordinating FATCA rules with existing withholding rules
  • The revision of qualified intermediary (QI), withholding foreign partnership (WP) and withholding foreign trust (WT) agreements,
  • The treatment of a regulated investment company (RIC, or mutual fund) as a qualified investment entity (QIE) under FIRPTA for withholding exemptions on RIC distributions that are attributable to gains from the sale of U.S. real property interests,
  • The withholding exemption on certain interest-related dividends and short-term capital gains dividends paid by a mutual fund or other RIC, and
  • The characterization and source of income received from multilevel marketing companies (lower-tier distributors) by upper-tier distributors that is based on the sales or purchases of the lower-tier distributors.

Future developments

For the latest information about developments related to Publication 515, such as legislation enacted after it was published, go to http://www.irs.gov/pub515

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Sidebar: IRS announces Web-based system for FATCA data exchanges
The IRS opened the International Data Exchange Service (IDES), which foreign financial institutions and host country tax authorities will use to securely transfer to the tax agency information reports on financial accounts held by U.S. persons.

The exchanges of data using IDES will fall under either the Foreign Account Tax Compliance Act (FATCA) or the terms of an intergovernmental agreement.

Using IDES, a Web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission levels safeguards sensitive tax information.

The IDES User Guide with instructions for enrolling in and using IDES. IDES enrollment.

Looking ahead

Now is the time to be certain your accounts are in order, disclosed and properly reported. Countries must agree to the law or face repercussions.

Failure to timely file can result in a $10,000 penalty for failing to disclose, plus additional penalties reaching as high as another $50,000 if nondisclosure continues after notification from the IRS.