IRS Issues Memorandum on Withholding Tax when a Beneficial Owner Claims Exemption but Fails to Include the Relevant Income in Their Tax Return

On 11 July 2014, the Office of Chief Counsel of the U.S. IRS issued a memorandum on providing notification to a withholding agent when a foreign beneficial owner fails to report effectively connected income in their tax return and later attempts to claim a withholding tax exemption by submitting Form W-8ECI to the withholding agent.

With Form W-8ECI, a foreign beneficial owner of income effectively connected with the conduct of a U.S. trade or business can claim exemption from withholding t…