§1474 — Title 26 Internal Revenue Code | U.S. Code

Summary

Anyone required to withhold tax on payments to foreign accounts under these rules is personally liable for that tax, but is protected from lawsuits over payments they properly withheld. Whether withheld tax counts as an overpayment for the foreign recipient is generally decided under the normal withholding rules, with a big exception: when the recipient is a foreign financial institution that did not sign up to report its U.S. account holders, it can get a credit or refund only to the extent a tax treaty entitles it to a lower rate, with no interest paid, and no refund at all if no treaty applies. No refund is allowed unless the payment's owner gives the IRS the information needed to identify any substantial U.S. owners. The fact that a foreign bank has signed a reporting agreement is not treated as confidential return information, and the IRS must coordinate this withholding with other withholding rules so amounts are credited properly.

Title 26, §1474

Internal Revenue Code — Source: USLM XML via OLRC

(a)Every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provisions of this chapter.

(b)(1)Except as provided in paragraph (2), the determination of whether any tax deducted and withheld under this chapter results in an overpayment by the beneficial owner of the payment to which such tax is attributable shall be made as if such tax had been deducted and withheld under subchapter A of chapter 3.

(2)(A)In the case of any tax properly deducted and withheld under section 1471 from a specified financial institution payment—

(i)if the foreign financial institution referred to in subparagraph (B) with respect to such payment is entitled to a reduced rate of tax with respect to such payment by reason of any treaty obligation of the United States—

(I)the amount of any credit or refund with respect to such tax shall not exceed the amount of credit or refund attributable to such reduction in rate, and

(II)no interest shall be allowed or paid with respect to such credit or refund, and

(ii)if such foreign financial institution is not so entitled, no credit or refund shall be allowed or paid with respect to such tax.

(B)The term “specified financial institution payment” means any payment if the beneficial owner of such payment is a foreign financial institution.

(3)No credit or refund shall be allowed or paid with respect to any tax properly deducted and withheld under this chapter unless the beneficial owner of the payment provides the Secretary such information as the Secretary may require to determine whether such beneficial owner is a United States owned foreign entity (as defined in section 1471(d)(3)) and the identity of any substantial United States owners of such entity.

(c)(1)For purposes of this chapter, rules similar to the rules of section 3406(f) shall apply.

(2)The identity of a foreign financial institution which meets the requirements of section 1471(b) shall not be treated as return information for purposes of section 6103.

(d)The Secretary shall provide for the coordination of this chapter with other withholding provisions under this title, including providing for the proper crediting of amounts deducted and withheld under this chapter against amounts required to be deducted and withheld under such other provisions.

(e)Any tax deducted and withheld pursuant to an agreement described in section 1471(b) shall be treated for purposes of this title as a tax deducted and withheld by a withholding agent under section 1471(a).

(f)The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of, and prevent the avoidance of, this chapter.

§1474 Special Rules

Summary

Title 26, §1474

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