Pension & Benefits News IRS proposed regs provide answers for withholding on benefit distributions delivered outside of U.S.
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Thursday, June 27, 2019

IRS proposed regs provide answers for withholding on benefit distributions delivered outside of U.S.

By Pension and Benefits Editorial Staff

The IRS has issued proposed regulations that provide guidance, in a question-and-answer format, on the withholding rules for distributions from deferred compensation plans, individual retirement accounts, or commercial annuities delivered outside of the United States. The new rule would adopt IRS Notice 87-7 guidance and also would provide clarification for certain payments.

Deferred income sent outside U.S. Pension, annuity, and other similar deferred income payments are subject to mandatory income tax withholding if they are delivered outside of the United States or any U.S. possessions. Taxpayers receiving these payments generally cannot elect out of this withholding. Mandatory withholding does not apply, however, if the recipient certifies to the payor that he or she is not a U.S. citizen, a resident alien, or a tax-avoidance expatriate under Code Sec. 877.

Notice 87-7 addresses the mandatory withholding duties of payors on distributions to:

  • payees who have provided the payors with a residence address outside the U.S.;
  • payees who have provided the payors with a residence address within the U.S.; and
  • payees who have not provided the payors with a residence address.
  • The proposed regulations are based on Notice 87-7, but also clarify the withholding rules for distributions to:
  • payees who provide payors with an Army Post Office (APO), Fleet Post Office (FPO), or Diplomatic Post Office (DPO) address; and
  • payees who provide the payor with a residence address located within the U.S., but who also provide payment instructions requesting that the distribution be delivered to a financial institution or other person located outside of the U.S.

The proposed regulations do not apply to eligible rollover distributions.

Applicability date. The regulations are proposed to apply to distributions on or after the date they are published as final regulations in the Federal Register. Taxpayers may continue to rely on Notice 87-7 until the regulations are finalized. Taxpayers may also rely on the proposed regulations’ provisions on APO, FPO, or DPO addresses until the applicability date of the final regulations.

Comments. Written or electronic comments and must be received by August 29, 2019. Send submissions to CC:PA:LPD:PR (REG-132240-15), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington DC 20044. Submissions may be hand-delivered Monday through Friday between 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-132240-15), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 20224, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (indicate IRS REG-132240-15).

SOURCE: 84 FR 25209.

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