IRS Expands Scrutiny of Businesses Making Payments to Nonresident Aliens and Foreign Entities

Officials from the Internal Revenue Service (IRS) have disclosed that the IRS is expanding the scope of its withholding and reporting agent compliance initiative beyond the financial services industry and will soon target numerous industries and tax exempt organizations that make payments to nonresident aliens and foreign entities. In addition, the IRS is increasing the number of examinations of withholding and reporting agents and expanding the scope of these examinations beyond interest and dividend payments. The focus of these audits will now also include payments to foreign vendors, royalties, rents, and other payments.

The expansion of this enforcement initiative follows a recent settlement program. The Voluntary Compliance Program (VCP), which expired on March 31, 2006, provided penalty abatement for withholding agents that voluntarily conducted self evaluations of their withholding and reporting procedures, disclosed areas of noncompliance, and corrected withholding and reporting errors. More than 400 withholding agents, mostly in the financial services industry, participated in this initiative.

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