A withholding agent's own-funds refund uses the 45-day interest rule

Plain-English summary

Chief Counsel considered which interest-free period applies when a withholding agent seeks a Form 1042 refund for tax it paid from its own funds. Section 6611(e)(4) allows 180 days for refunds arising from tax actually deducted and withheld under chapters 3 or 4. The advice concludes that an agent's own payment does not meet that description because the agent did not actually withhold the refunded amount. Sections 1464 and 1474 distinguish refunds to withholding agents for their own payments from refunds to the beneficial owner when tax was actually withheld. The ordinary 45-day period in section 6611(e)(1) therefore applies, although the advice does not cover permitted collective refund claims made on behalf of account holders or other beneficial owners for amounts actually withheld.

Ruling snapshot

• Question: Does the 180-day interest-free period apply when a withholding agent claims a refund of tax paid from its own funds rather than amounts actually withheld?
• Outcome: Advice given, the 45-day period applies
• Key authorities: IRC §§ 1464, 1474, 6611(e)(1), and 6611(e)(4); Treas. Reg. § 1.1464-1(a)

Full text (IRS public release)

ID:         CCA_2016052416400604
UILC:       6611.00-00, 6611.04-00, 6611.07-
            00
Number: 201625017
Release Date: 6/17/2016
From:
Sent: Tuesday, May 24, 2016 4:40:06 PM
To:
Cc:
Bcc:
Subject: IRC 6601(e)(4)


--------,

I am following up on an email I sent you on March 21st, discussing whether a claim for
refund made by a withholding agent on a Form 1042 for amounts that it paid to the IRS
is subject to the 180-day interest free period in section 6611(e)(4). I discussed the
issue with ACC:I and they indicated that such refunds to a withholding agent do not
arise from overpayments “resulting from tax deducted and withheld under either chapter
3 or 4” as stated in 6611(e)(4). This is because in these situations in which the
withholding agents are entitled to refunds (or credits), they have not actually withheld
the amounts for which the refund is claimed. Rather, the withholding agent should only
be receiving a refund if it paid the taxes from its own funds. In a case in which the
withholding is actually applied, then a refund or credit should be provided only to the
beneficial owner or the taxpayer subject to withholding (i.e., a case in which section
6611(e)(4) would apply). Note that this advice does not apply to claims for refund made
by certain withholding agents on Form 1042, to the extent permitted for chapter 3 or 4
purposes, that make claims for collective refund on Form 1042 on behalf of their
account holders, partners, owners, or beneficiaries for amounts that were actually
withheld.

The above conclusion with respect to a withholding agent’s claim for refund is based on
section 1464, which states that “when there has been an overpayment of tax under
[chapter 3] any refund or credit made under chapter 65 shall be made to the withholding
agent unless the amount of such tax was actually withheld by the withholding
agent.” Treas. Reg. 1.1464-1(a) similarly provides that the refund or credit of an
overpayment actually withheld at the source under chapter 3 shall be made to the
taxpayer from whose income the amount of such tax was in fact withheld. To the extent
that the overpayment was not in fact withheld at the source but was paid by the
withholding agent, the overpayment shall be made to the withholding agent. With
respect to chapter 4, section 1474 generally provides that refunds for amounts deducted
and withheld are to be made to the beneficial owner of the payment to which the tax is
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attributable, and those refunds should be made as if such tax had been deducted and
withheld under chapter 3.

Given this legal background and the fact that overpayments refunded to withholding
agents for amounts paid out of their own funds do not actually result from amounts
deducted and withheld under chapter 3 or 4, we now conclude that the 180-day period
in section 6611(e)(4) should not be applied to withholding agents that make refund
claims for amounts that they have paid from their own funds rather than by withholding
as required under chapter 3 or 4 and instead, the 45-day period of section 6611(e)(1)
should be applied.

Please let me know if you would like to discuss.

Thanks,
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