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Issues related to IRC section 1441 nonresident alien regulations are examined, focusing on the background to the regulations and the impact they will have. Topics include the IRS objectives to identify all investors in non-US financial intermediaries and to eliminate treaty abuses, the Qualified Intermediary concept, and SWIFT, a cooperative providiing electronic messaging services and software for financial institutions.

Issues related to the tax position of US companies regarding payments made to foreign investment vehicles are examined, focusing on the implications of final regulations under IRC sections 894 and 1441. Topics include use of regulations to determine whether the normal 30% US withholding tax can be reduced and reporting obligations under section 1441.

Participants at the ABA Tax Section meeting in August 1999, in Atlanta, GA, discussed the implications of regulations regarding foreign qualified intermediaries (QIs) and the July Court of Federal Claims decision in National Westminster Bank v. United States. Foreign QIs must obtain waivers of nondisclosure law from US payees under IRC section 1441. The Court of Federal Claims decision concerned deductible interest for foreign banks, under IRC section 882, in the US but may have implications for foreign manufacturers of goods who sell products in the US. Taxable income of such foreign manufacturers is subject to IRC section 863(b).

IRS regulations under IRC section 1441 successfully deal with the intersection between U.S. withholding taxes and tax treaties and are especially helpful for payments made to transparent entities. The regulations which were issued in Oct 1997 will not be effective until Jan 1999, providing time for clarification of some issues created by the new procedures. The important changes made include eliminating the dividends address rule, hybrid entity special rules, and taxpayer identification number certification.

Issues related to the taxation of foreign investment funds are examined, focusing on the complexities in following IRC section 1441 withholding regulations and section 894 treaty-based regulations. Topics include the implications of classifying the foreign investment fund as a trust, a corporation, or a partnership.

The IRS has launched a voluntary compliance program (VCP) under Sec. 1441 for withholding agents (such as financial institutions) that make payments of U.S.-source dividends, interest, rents, royalties and other [...]

Issues regarding proposed regulations for tax years of domestic and foreign partnerships are examined, focusing on comments made at an IRS hearing during the week of Jun 4, 2001. Topics include determining tax year under IRC sections 706 and 1441, effect of regulations on US multinational corporations that are minority partners in foreign partnerships, and administrative burdens of regulations.

The IRS issued a general information letter clarifying its position on whether payroll taxes should be deducted from travel and other expenses paid by universities to visiting professors who are nonresident aliens. Taxes need not be withheld. The decision benefits both visiting professors and universities, who do not have to inflate their payments to cover professors' expenses. The IRS had previously held the expenses should include withheld taxes under IRC section 1441, but the letter indicated they need not under accountable plan rules of IRC section 274.

The IRS issued final regulations in October 1997 that changed existing rules on withholding on payments to foreign persons under Sec. 1441. These regulations (effective Jan. 1,2000) apply to any [...]

IRS Notice 98-16 states that the applicability of IRS final regulations, which will provide guidance regarding withholding tax on payments made to foreign persons, has been altered. The regulations will become applicable to payments made beginning in 2000. Transition rules, such as those regarding withholding statements and certificates, have been changed. The IRS plans to issue in 1998 model qualified intermediary withholding agreements applicable to rules in IRS Revenue Procedure 98-27.