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Documentation Definitions

Insufficient Documentation

Definition: If the Service determines that a withholding agent relied on insufficient documentation and had actual knowledge or reason to know that a claim of U.S. status or of a reduced treaty rate is incorrect it could be liable for up to 30% of the gross amount of the income subject to withholding. Withholding agents should apply the due diligence standards pursuant to the regulations. As such, a withholding agent who has actual knowledge or reason to know that a withholding certificate or other documentary evidence

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Information Return vs Tax Return

Definition: In General Counsel Memorandum (GCM) 36372 Application of Section 6652(d) Penalty to Incomplete Forms 990-P and 4848, the Service considered whether section 6652(d)(1) would apply where entities required to file Forms 990-P and 4848 failed to provide all of the information required to be provided on those forms. In reaching the conclusion that the penalty is applicable under such circumstances, the GCM considers how information returns differ from income tax returns. The memo takes the position that cases concerning incomplete income tax returns are distinguishable

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Documentation Furnished After Payment

Definition: When a payee or beneficial owner provides documentation after a payment is made it is considered late. The Service may accept late documentation if the withholding agent has met one of the following requirements. It has appropriately relied on the presumption rules It can demonstrate to the Service that the proper amount of tax, if any, was in fact paid It can show that no documentation was required under IRC §1441 It can show that it has complied with Treas. Reg. §1.1441-6(c) or (g) with

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Definition: In general, if a payment is subject to withholding a withholding agent must withhold 30% of the payment unless it can reliably associate the payment with documentation which shows that the payee or beneficial owner is entitled to a reduced rate of withholding. Documentation can include Forms W-8BEN, W-ECI, W-8EXP, W-8IMY, W-8CE, Form 8233 and other documentary evidence. A withholding agent may rely on documentation without having to inquire about the truthfulness of the documentation unless it has actual knowledge or reason to know that

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Treaty Benefits

Definition: The concept of withholding tax on payments to nonresident alien individuals and foreign corporations applies to U.S. source FDAP income that is not effectively connected with a trade or business in the U.S. This is because FDAP income that is effectively connected with a U.S. trade or business of the foreign person is taxed as part of the net income of the U.S. trade or business. “The U.S. taxes nonresident alien individuals and foreign corporations on their U.S. source income under either a withholding on

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