IRS releases new procedures for delinquent withholding tax returns

Tax Hot Topics newsletterIn a Feb. 27 memorandum to employees, the IRS Large Business and International division (LB&I) set forth new procedures for accepting delinquent withholding tax returns, such as Forms 1042, 8804 and 8288.

Under the new procedures, LB&I’s foreign payments practice (FPP) has created a central point of contact within the IRS where withholding agents can submit delinquent withholding tax returns and pay any required withholding tax obligation. FPP agents will review the submissions, determine whether there is reasonable cause for the failure, and either grant penalty relief (if requested) or refer the submission for examination.

The new procedures require the withholding agent to submit any delinquent withholding tax returns, including related information returns (such as Forms 1042-S or 8805), as well as full payment of the tax due. All submissions should be on paper versions of forms even if such forms would have been required to be e-filed had timely filings been made. The submissions must also include a statement that:

  • Explains the areas or lines of business for which there was noncompliance
  • Explains how the noncompliance was discovered
  • Describes the corrective measures that have been implemented to ensure future compliance
  • Includes a copy of the procedures related to those corrective measures, as communicated to employees or other responsible parties of the withholding agent
  • Represents that the withholding agent has not filed delinquent returns under these procedures in prior years

A withholding agent is not eligible to use these new procedures if it is under examination with respect to any liabilities related to withholding tax filings on the date of the submission. The enforcement period generally applies to six years of non-filed or delinquent returns, but the IRS may go beyond that period with managerial approval.

Importantly, for penalty relief to be considered, the withholding agent must provide a robust reasonable cause request that includes information on the withholding agent’s processes, and the impact of its failure on various payees, among other things. The reasonable cause relief described in the memorandum may require information to be submitted that generally goes beyond that which is currently submitted by withholding agents.

David Auclair
Managing Principal
Washington National Tax Office
T +1 202 521 1515
David Balaban
Ft. Lauderdale
T +1 202 521 1515

Shamik Trivedi
Senior Manager
Washington National Tax Office
T +1 202 521 1511

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