by Brian Mahany
The IRS is a giant publicity machine. Just look at the number of indictments announced by the agency during tax filing season. Or how the Justice Department can be losing 30% of its tax division prosecutors while at the same time the IRS claims they are clamping down on tax cheats. Often the IRS will announce a new enforcement initiative but then not follow through.
There are exceptions of course. Last month we reported on the tripling in numbers of high net worth individuals being audited.
The back story about cross border withholding is a little less clear. In 2009, the IRS claimed this was soon to be a top priority but practitioners saw few results. That may be changing. In the second half of last year, the IRS began sending out record numbers of penalty notices to withholding agents.
For those unfamiliar with cross border withholding, withholding agents must hold back 30% of certain outbound income payments. The government believes that it’s only chance to collect taxes is before money leaves the U.S.
U.S. sourced income paid to foreign persons is reported on IRS Form 1042-S. A study by the IRS several years ago revealed that approximately 1/3 of these forms were wrong.
While much of the IRS’s focus on offshore reporting centers on U.S. taxpayers moving money offshore. The cross border withholding problem concerns withholding on foreign citizens earning money here.
This area of taxation is particularly complex because of the existence of specific tax treaties between the U.S. and certain other countries.
Although the IRS has been warning withholding agents for years that is was gearing up to tackle the problem, the agency finally appears to show signs of some bite to back up their bark.
If you are a business with foreign workers, a withholding agent or just someone who needs help with foreign reporting requirements, give us a call. Our tax attorneys help businesses, CPAs and individuals with a wide range of offshore tax issues.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries are kept in strict confidence and covered by the attorney – client privilege.
Mahany & Ertl – Giving Taxpayers A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.