Abusive Offshore Tax Avoidance Schemes - Law and Arguments (Section V)
V. Other Requirements
In addition to the tax issues and information returns discussed above, there are other sections of the Internal Revenue Code that require the withholding of tax at the source on certain types of income paid to foreign entities. While a detailed explanation of these code sections is beyond the scope of this material, you should be aware of specific sections that address the withholding of tax on payments to certain foreign persons in particular situations. These sections include:
- IRC § 1441 - Withholding of tax on nonresident aliens.
- IRC § 1442 - Withholding of tax on foreign corporations.
- IRC § 1445 - Withholding of tax on dispositions of United States real property interests.
- IRC § 1446 - Withholding of tax on foreign partner's share of effectively connected income.
The importance of these sections is that the liability for withholding the tax is placed on the "withholding agent," who is generally the U.S. person responsible for making the payment to the foreign person. In this fashion, even if the foreign person fails to file an income tax return, the government's interests are being protected as a tax amount has been collected. You should be aware of the impact these Code sections may have, as any examination may result in the identification of a payment to a foreign person, and withholding may be applicable (depending on the character of the income).
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.