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June 25, 2021
2021-1253

IRS LB&I adds compliance campaign focusing on financial services entities engaged in US trade or business

The IRS Large Business and International (LB&I) division has added a compliance campaign addressing whether foreign investors are liable for US tax on effectively connected income from lending transactions in which they participated through US trades or businesses. The IRS notes that IRC Section 864(b)(2) provides a safe harbor for foreign investors who simply trade stocks and securities in their own accounts, deeming them as not engaged in a US trade or business. The safe harbor, however, is not available to stock and securities dealers engaged in a lending business or to foreign investors in partnership lending businesses. This campaign will be accomplished through issue-based examinations.

 

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