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March 1, 2024

Report on recent US international tax developments - 1 March 2024

The IRS issued Notice 2024-26 on 27 February, exempting US and foreign withholding agents from electronically filing Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, for calendar year 2024. For US withholding agents, the electronic filing requirement is not required for 2023 Form 1042 (due 15 March 2024, or six months later by extension). For non-US withholding agents, electronic filing is not required for 2023 and 2024 Forms 1042 (due 15 March 2024 and 15 March 2025, respectively, or six months later by extension).

Form 1042 is an annual information return submitted by withholding agents to provide various information, including details on withholding tax liabilities, deposits for nonresident alien withholding under IRC Sections 1441 through 1443, and Foreign Account Tax Compliance Act (FATCA) withholding under IRC Sections 1471 through 1473. The return has historically been a paper ("wet ink" signature) mailing to the IRS. In February 2023, Treasury and the IRS published final regulations on electronic filing (e-filing) requirements that require certain withholding agents, including financial institutions and partnerships with at least 100 partners, to e-file Form 1042 and Form 1042-S starting with their 2023 reporting (to be filed with the IRS in 2024).

Note that the relief in Notice 2024-26 is automatic (i.e., no further action needs to be taken by the withholding agent) and the Notice will not treat a Form 1042 that is timely submitted on paper as a failure to file. A Global Tax Alert provides details.

A senior IRS official this week elaborated on recently announced changes to the IRS private letter ruling (PLR) program. The IRS in January 2024 issued Revenue Procedure 2024-1 and Revenue Procedure 2024-3, significantly broadening the scope of available letter rulings relating to certain issues under IRC Sections 332, 351, 355, 368 and 1036. The official was quoted as saying that the IRS will no longer issue significant single-issue rulings, but instead only entertain "transactional rulings." The official added that decisions on what could be considered included in a particular transaction would be made on a case-by-case basis.

The Senate on 29 February approved the nomination of Marjorie Rollinson to be the next IRS Chief Counsel. Rollinson spent the majority of her career at EY, retiring as Deputy Director of National Tax, and has held several senior positions at the IRS.

The OECD Council on 19 February approved an update to the commentary on Article 26 of the OECD Model Convention, dealing with exchange of information. According to an OECD announcement, the "update clarifies that information received through administrative assistance can be used for tax matters concerning persons other than those in respect of which the information was initially received. It also provides interpretative guidance on confidentiality, in particular regarding the access of taxpayers to information exchanged when such information has a bearing on their tax situation and regarding reflective non-taxpayer specific information, including statistical data, about or generated on the basis of exchanged information."

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor