Tax News

CCH (cch.taxgroup.com) reports:

IRS officials and practitioners discussed the proposed changes to Forms W-8BEN and 1042-S, as well as the proposed regulations regarding Code Sec. 1441 Withholding on Redemptions during the Executive Enterprise Institute's (EEI) 22nd Annual Withholding and Information Reporting Conference on October 26.
Form W-8BEN Proposed Changes
Drafts of revised Forms W-8BEN and 1042-S were released to the public on June 7, 2007, and July 13, 2007 respectively. According to John Prisco, technical advisor, IRS USWA program, the proposed changes to these forms were made to address uncertainties among practitioners as to what precisely the IRS would accept or require in connection with Form W-8BEN. Prisco highlighted some of the proposed changes to Form W-8BEN, including the following:
--Abbreviated country names will be permitted;
--Foreign tax identifying numbers must be provided;
--Joint account owners may be required to file separate Forms W-8BEN, including a husband and wife;
--Entering only a trust's name, and not the name of the trustee, will be allowed (on the other hand, if only a trustee's name is given, the name of the trust may not be entered); and
--A power of attorney may be authorized to sign in case of accident or injury, or if the IRS grants permission for "other good cause."
1441 Withholding
Philip Gartlett, partner, Burt, Staples & Maner, LLP, discussed the proposed regulations regarding Code Sec. 1441 withholding on redemptions during another session of the EEI conference on October 26. According to Gartlett, the proposed regulations (NPRM REG-140206-06; TAXDAY2007/10/17, I.2), in general, would apply to distributions made after December 31, 2008, although the preamble states that the proposed regulations may apply before then. Gartlett regarded the date as a "far out effective date." Gartlett highlighted the following rules regarding escrow procedures under the proposed regulations:
--Escrow procedures can only be used by an intermediary that is a U.S. financial institution and, according to Gartlett, "U.S. banks and brokers for the most part"; and
--Escrow procedures can only be used for documented foreign beneficial owners (distinguishable from the current regulations, which do not require documentation).
Gartlett also discussed various proposed rules on Code Sec. 302 Payment Certification under the same proposed regulations as well as provisions affecting qualified intermediaries. According to Gartlett, qualified intermediaries are prohibited from using escrow procedures directly under the proposed regulations.
Form 1042 Examinations
Todd Larsen, IRS USWA program manager, reminded practitioners that the IRS continues to increase its focus on the nonresident alien (NRA) withholding and reporting compliance of U.S. withholding agents. According to Larsen, the IRS is "expanding the focus and depth" of audit. Larsen also explained that all types of companies are subject to examination, and that a Form 1042 examination (Form 1042, Withholding Tax Return for U.S. Source Income) will also "look at payments to vendors" and all types of payments "subject to Code Sec. 1441 withholding."
By Hilary Goehausen, CCH News Staff