Withholding Agents–Obligation to Withhold On Payments to Foreign Persons When Source of Payment Uncertain

In recent guidance to auditors, the IRS discusses what happens when a payor withholding agent pays items to a foreign payee when the withholding agent is uncertain whether the payment is U.S. source.

By way of background, Code Sections 1441 and 1442 impose a 30% withholding obligation (less under treaties) on payors of U.S. source fixed or determinable annual or periodical income (FDAPI). In most cases, the payor will know if the source is U.S. source. The guidance notes these common rules: …