LB&I Issues Memo on Accepting Delinquent Withholding Tax Returns

Date: February 27, 2019

Expiration Date: 02/27/2021
Affected IRM: 4.10.21

MEMORANDUM FOR
ALL LB&I EMPLOYEES

FROM:
Douglas W. O'Donnell
Commissioner, Large Business and International Division

SUBJECT:
Procedures for Accepting Delinquent Withholding Tax Returns in
Connection with Withholding Agent Disclosure

The Service continues to be contacted by entities who have identified shortfalls in their systems and are seeking comply with their obligations for filing Form 1042, Form 8804, and/or Form 8288 and related information returns.

To provide consistent treatment under these circumstances, the Foreign Payments Practice (FPP) has created a central point of contact where withholding agents can submit delinquent withholding tax returns, as listed above, and pay their withholding obligations.

When returns are received under these procedures, FPP revenue agents will review the information submitted and consider a request for penalty relief if one is included. Each submission may be subject to an audit referral, with approval by the FPP territory manager. These procedures do not provide determinations by the IRS about whether a payment (such as the amount, timing, character, or source of such payment) was subject to withholding.

REQUIREMENTS FOR USING THESE PROCEDURES

To use these procedures, a withholding agent must submit any delinquent withholding tax returns, including related information returns, along with full payment of the tax due and a statement including:

A withholding agent may file delinquent returns using these procedures if it is a withholding agent, as defined in Treas. Reg. § 1.1441-7(a)(1) of the Income Tax Regulations, that is not a “qualified intermediary,” a “withholding foreign partnership,” or a “withholding foreign trust”, as these entities are subject to other agreements.

The withholding agent must report and remit any tax not already paid and will be expected to pay interest and any penalties for which relief is not otherwise granted pursuant to these procedures. In cases involving large underpayments, the IRS will consider the withholding agent's proposal for payment of the liability in more than one installment or will consider the withholding agent's posting of a cash bond under the procedures outlined in Rev. Proc. 2005-18, 2005-1 C.B. 798.

The IRS reserves the right to verify that corrections to the withholding agents' procedures, as outlined in this memo, have been made. This verification does not constitute an examination. If the IRS determines an exam is warranted the withholding agent will be notified and the exam will be completed as soon as possible.

The IRS will issue an acknowledgment letter at the conclusion of its verification, if the IRS is satisfied the withholding agent has corrected its systems and has paid or made satisfactory arrangements to pay the outstanding liabilities that arose from the delinquent return filings.

WITHHOLDING AGENTS CURRENTLY UNDER EXAMINATION

A withholding agent is not eligible to use these procedures if the withholding agent is under examination with respect to any liabilities related to withholding tax filings on the date of the delinquent return(s) submission. For this purpose, an examination is treated as commencing on the date the withholding agent receives notification from the IRS of an impending examination or of an impending referral for examination. In addition, filing under these procedures is not available to any withholding agent that has the same issue pending in Appeals or is in litigation on issues involving Chapter 3 or 4 tax, withholding, or reporting obligations.

ENFORCEMENT PERIOD

Consistent with IRM 1.2.14.1.18, the filing of delinquent returns generally applies to six (6) years of non-filed/delinquent returns with managerial approval required for any additional years.

NO CLOSING AGREEMENT

The Service will not provide a closing agreement for any submission. The delinquent returns received will be processed in accordance with IRM 4.4.9 (Delinquent and SFR Processing).

REQUESTS FOR PENALTY RELIEF UNDER REASONABLE CAUSE

For penalty relief to be considered, the withholding agent must provide a request for penalty relief and include, at a minimum, the following items with their submission package:

REQUIRED RELATED INFORMATION

In addition to the information described above the delinquent return filing must contain the following:

SUBMISSION PROCEDURES

Send original, signed tax returns, payment, and related information to —

QUESTIONS

Questions or messages relating to these procedures may be left at (630) 493-5009. Calls will normally be returned within 5 business days.