Key Takeaways from the Kaplan Withholding and Reporting Conference
Tax Reporting & Withholding Takeaways from Kaplan Conference
On the 2-3 November Kaplan kicked off the month with their Withholding and Reporting Conference. There were several topics discussed at the conference, but three noteworthy topics stood out to me as particularly interesting for the audience of tax professionals and experts from across the industry.
Final Section 1446(f) regulation
IRS Audit Readiness
- Year-In Review
Let us look at these three topics in greater detail. Below I have highlighted the key points raised that caught the attention of the audience whilst listening to the speakers.
Final Section 1446(f) Regulation
I had the benefit of listening to an insightful update on the key industry challenges of implementing 1446(f), thank you to Tara Ferris and Chip Collin for moderating the session.
The final 1446(f) regulations were published in October 2020. Since then, there has been the release of Notice 2021-51 which delayed the withholding on Publicly Traded Partnerships (PTP) until Jan. 1, 2023. This was followed by the release of Forms W-8BEN, W-8BEN-E, W-8IMY and W-8ECI in October/November 2021. This year in May, Notice 2022-23 was released with a proposed rider to the Qualified Intermediary (QI) Agreement and Section 1446(a) and 1446(f) withholding and reporting requirements for QI’s.
One of the key points of focus was the identification and withholding statements for a QI’s that do not assume withholding under Section 1446. This includes Disclosing QI, where a qualified intermediary has elected to disclose payee specific information for withholding and reporting. There is a requirement that all the payees of the Disclosing QI have a US TIN to successfully be treated as a Disclosing QI. Non-Disclosing QI’s must provide a rate pool statement with the relevant partnership share allocation and applicable rate of withholding.
The level of detail needed for 1446 related withholding statements increases the income types captured currently. This is a key focus of mine to ensure the TAINA Platform has a format that appeals to our clients and their customers.
IRS Audit Readiness
Thank you to the Kaplan panel of Kevin Sullivan and Chris Shott who outlined what is required for IRS Audit Readiness.
We know that Treasury Inspector General for Tax Administration (TIGTA) published two reports in June of 2020 that outlined a need for improved oversight of compliance under FATCA. These reports outline the high cost for implementing a compliance structure that returned a low rate of withholding. They also highlighted low collection from assessments of compliance campaign activities. Earlier this year congress increased the IRS budget to allow for the hiring, training, and deployment of additional people to conduct audits and reviews.
The key items highlighted by the panel included a review of the IRM to make sure teams are familiar with the process that will be conducted as part of a review. Next is to review your policies and procedures, are they up to date and can you demonstrate the operational controls in the process. Also conduct health checks by sampling forms for certified accounts, confirming the application of the withholding and ensuring the proper data is being mapped for information reporting.
Remember if you conduct a health check and find a failure you have an opportunity to file a Voluntary Disclosure and negotiate with the IRS. Once you have notified that you are selected for audit your voluntary disclosure may not be accepted.
Thank you to the Kaplan panel featuring Rob Limerick and Susan Seagar for covering several topics including Crypto Reporting updates, IRS agreement renewals, 871(m) updates, 1099 and 1042-S updated.
I will focus on the release of Notice 2022-05 that addresses Sponsoring Entities with no registered sponsored entities. Sponsoring entities that have no registered sponsored entities are considered by the IRS to not be performing the obligations of a sponsoring entity. The IRS will notify sponsoring entities with no sponsored entities to cancel their FATCA agreement. If no action is taken within 60 days of notification, the entity will be removed from the published FFI List and may be subject to 30% withholding. You may be required to register as a sponsoring entity even when you have no sponsored entities, therefore you may need to respond to the notice issued by the IRS to protect your FFI status.
Another update I would like to focus on was the reminder that withholding foreign partnership and trusts that agreed to the provisions of a WP or WT agreement in Revenue Procedure 2017-21 will not need to renew their agreement until after December 31, 2023. Their agreements would have previously expired December 31, 2022.
The last update from this panel I would like to focus on was related to treaties with the US. Most tax professionals are aware that the treaty with Hungary will be terminated on January 8, 2023. In addition, the Treasury Department has added Turkey to the list of countries which has an Information Exchange Agreement with the Treasury and the IRS. The United States-Chile income tax treaty that was signed in February 2010 and has been pending ratification, this will provide for the following rates of withholding
- Dividends: 5% for 10%+ owners, 15% for all others
- Interest: 4% for banks and similar entities, 10% for all others
- Royalties: 2% for use of equipment, 10% for all others
How Can TAINA Help?
The above changes will drive a change in policies and procedures. Now more than ever, it is important to think about whether an automated solution in the IRW space would be of value to your organization because there are limits to how far we can stretch our people. Let us focus on automating repetitive processes.
Using TAINA’s fully automated FATCA and CRS Validation Platform you can streamline your FATCA and CRS validation process whilst ensuring you have good year-end data that will result in clean tax reporting to tax authorities all year round. TAINA takes care of your FATCA and CRS compliance in a seamless end-to-end process whilst reducing risk and cost using a transparent, comprehensive and consistent FATCA, CRS and Chapter 3 ruleset, kept up to date by TAINA working together with the worlds leading advisers from two of the Big 4.
When the IRS come knocking they will be asking to look at your documentation. TAINA's Audit Portal helps you prove compliance with a robust and detialed audit trail, evidencing all documents collected and changes and cured change in circumstances made throughout the validation, remediation process.
The TAINA Platform can also help you meet your 1446(f) requirements by providing a fully automated, flexible system for tracking events, collecting withholding certificates and managing withholding.