FATCA: Refund claims by non-resident aliens, withholdings not deposited

FATCA: Refund claims by non-resident aliens

The IRS today released an advance version of Notice 2015-10 as guidance for individuals who seek to file refund claims for amounts withheld under Code chapter 3 or chapter 4—i.e., non-resident alien and FATCA withholding—but the withholding agent has failed to remit and deposit the withholding amount as reported on Form 1042-S to the Treasury Department.

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Notice 2015-10 [PDF 66 KB] states that future regulations will be issued.

Background

Today’s IRS notice is being issued in response to concerns of Treasury and the IRS about instances when persons subject to withholding, under the non-resident alien or FATCA provisions of Code chapter 3 or chapter 4, file claims for refunds or credit, but the withholding agent has failed to deposit the amounts withheld to the Treasury Department.

If a refund or credit is issued for an amount that has not been deposited, the IRS may not be able to recover that amount because the claimant and, in some cases, the relevant withholding agent, may be outside the United States.

Future regulations

Notice 2015-10 states that Treasury and the IRS intend to issue regulations with respect to claims for refund or credit for amounts withheld under chapter 3 or chapter 4.

The future regulations will provide that a claim for refund or credit made by a claimant that is the beneficial owner of a withheld payment will be available only to the extent that the relevant withholding agent deposited the amount withheld—in other words, no deposit of withholding, no allowable refund claim.

The provisions contained in Notice 2015-10:

  • Provide background on the statutory and regulatory rules governing refund and credit claims for amounts withheld under chapter 3 or chapter 4
  • Describe the regulations that Treasury and the IRS intend to issue with respect to the treatment of refund and credit claims made by persons subject to withholding under chapter 3 or chapter 4 when the amount withheld is not deposited with the Treasury Department by a withholding agent as required under section 6302 (or otherwise paid to the Treasury Department)
  • State that the regulations will provide for a pro rata allocation of the amount available to the claimant for refund or credit when a withholding agent has partially satisfied its deposit requirements
  • Provide that the future regulations will apply to claims for refund or credit for amounts withheld with respect to the 2015 calendar year and later

Notice 2015-10 concludes that the IRS will continue to deny claims for refund or credit when appropriate, including for fictitious withholding and other fraudulent claims.

The IRS has requested public comments regarding the administration of the pro rata allocation and procedural rules described in Notice 2015-10 and on potential exceptions to the rules described in the notice. Comments are due on or before June 29, 2015.

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