The U.S. Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-132240-15) concerning the rules for withholding on certain periodic and non-periodic distributions under section 3405 (other than eligible rollover distributions).
The proposed regulations [PDF 318 KB] generally adopt guidance previously provided by the IRS in Notice 87-7, with certain clarifications and amendments.
The IRS issued Notice 87-7 as guidance under section 3405(e)(13)(A) to payors of designated distributions with respect to their duty to withhold income tax from these distributions. The IRS notice addresses designated distributions to the following categories of payees:
Notice 87-7 specifies that:
According to the preamble to today’s proposed regulations, Notice 87-7 provides “an administrable standard with respect to withholding under section 3405.” The proposed regulations are, thus, based on the guidance provided in Notice 87-7 but with clarifications concerning situations when:
Once these rules are finalized, the regulations would supersede the guidance in Notice 87-7 for payors of designated distributions with respect to their duty to withhold under sections 3405(a)(1) or (b)(1).
The proposed regulations are to apply with respect to distributions on or after the applicability date of the final regulation. Until then, taxpayers may continue to rely upon Notice 87-7, or they may apply Prop. Reg. section 31.3405(e)-1(b)(1) and (2) until the regulations are finalized.
Comments or requests for a public hearing on the proposed regulations are due 90 days after the proposed regulations are published in the Federal Register (scheduled for May 31, 2019).
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.