Revised LBI procedures for delinquent withholding tax returns

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April 2019

Overview

The Commissioner of the IRS Large Business and International (LB&I) Division on February 27 announced in a Memorandum for All LB&I Employees (the Memorandum) that new procedures had been developed to facilitate the filing of delinquent Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons; Forms 8804, Annual Return for Partnership Withholding Tax (Section 1446); and Forms 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests. In addition, the Foreign Payments Practice (FPP), the office within LB&I with oversight of these forms, recently established a centralized office where FPP revenue agents will review submissions of delinquent returns and evaluate requests for penalty relief.

The Memorandum sets forth a specific method for withholding agents to address their delinquencies with Forms 1042, 8804, and 8288. The new procedures provide more uniformity for taxpayers, as the IRS does not set any limitations on the use of the process based on number of forms or dollar value of withholding tax.

One area of uncertainty, however, is whether the IRS will continue to allow voluntary disclosures or penalty abatement requests for Forms 1042, 8804, or 8288 matters outside of this new process. This would include situations where withholding agents simply file delinquent returns normally and request penalty relief upon the proposal or assessment of penalties by the IRS. The Memorandum does not explicitly address this issue; thus, although the new procedures theoretically could be available in such circumstances, resource limitations may affect the IRS’s ability to handle such requests. These alternative methods still may be the only process for relief that businesses that have prior delinquencies or that otherwise are ineligible for the FPP process may be able to use.

The takeaway

The Memorandum sets forth a specific method for withholding agents to address their delinquencies with Forms 1042, 8804, and 8288. The new procedures provide more uniformity for taxpayers, as the IRS does not set any limitations on the use of the process based on number of forms or dollar value of withholding tax.

One area of uncertainty, however, is whether the IRS will continue to allow voluntary disclosures or penalty abatement requests for Forms 1042, 8804, or 8288 matters outside of this new process. This would include situations where withholding agents simply file delinquent returns normally and request penalty relief upon the proposal or assessment of penalties by the IRS. The Memorandum does not explicitly address this issue; thus, although the new procedures theoretically could be available in such circumstances, resource limitations may affect the IRS’s ability to handle such requests. These alternative methods still may be the only process for relief that businesses that have prior delinquencies or that otherwise are ineligible for the FPP process may be able to use.

Contact us

Candace Ewell

Partner, Tax Controversy and Regulatory Services, PwC US

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