Reg. § 1.1446(f)-5 Liability for failure to withhold.
(a) Liability for failure to withhold Every person required to withhold and pay tax under section , but that fails to do so, is liable for the tax under section , plus any applicable interest, penalties, or additions to tax. A partnership that failed to withhold and pay tax under is liable only for the amount of tax that it failed to collect (but not any interest computed on that amount under ), plus any interest, penalties, or additions to tax with regard to the partnership's failure to withhold.
(b) Tax liability otherwise satisfied Under section , if the tax required to be withheld under section is paid by another person required to withhold under section , or by the nonresident alien individual or foreign corporation subject to tax on gain resulting from section , the tax will not be recollected. The person required to withhold must establish proof of payment by another person required to withhold or by the nonresident alien individual or foreign corporation subject to the tax on gain resulting from section . The person required to withhold may show that a reduced rate of withholding was appropriate by establishing the amount of tax due by the foreign transferor (as defined in ) on gain resulting from section . The person required to withhold under section is not relieved from liability for any interest, penalties, or additions to tax that would otherwise apply. However, if the person required to withhold establishes to the satisfaction of the Commissioner that no gain on the transfer is treated as effectively connected with the conduct of a trade or business within the United States under section , no interest, penalties, or additions to tax will apply.
(c) Liability of agents
(1) Duty to provide notice of false certification A transferee's or transferor's agent (other than a broker required to withhold under ) must provide notice to a transferee (or other person required to withhold) if that person is furnished with a certification described in through that the agent knows is false. A person required to withhold may not rely on a certification if it receives the notice described in this .
(2) Procedural requirements Any agent who is required to provide notice under of this section must do so in writing (including by electronic submission) as soon as possible after learning of the false certification. If the agent first learns of the false certification before the date of transfer, notice must be given by the third day following that discovery but no later than the date of transfer (before the transferee's payment of consideration). If an agent first learns of a false certification after the date of transfer, notice must be given by the third day following that discovery. The notice must also explain the possible consequences to the recipient of a failure to withhold. The notice need not disclose the information on which the agent's statement is based. The agent must also furnish a copy of the notice to the IRS by the date on which the notice is required to be given to the recipient. The copy of the notice must be delivered to the address provided in and must be accompanied by a cover letter stating that the copy is being filed pursuant to the requirements of this .
(3) Failure to provide notice Any agent who is required to provide notice under of this section, but fails to do so in the manner required in of this section, is liable for the tax that the person who should have been provided notice in accordance with of this section was required to withhold under section if the notice had been given.
(4) Limitation on liability An agent's liability under of this section is limited to the amount of compensation that the agent derives from the transaction. In addition, an agent that assists in the preparation of, or fails to disclose knowledge of, a false certification may be liable for civil and criminal penalties.
(d) Applicability date This section applies to transfers that occur on or after January 29, 2021.
[T.D. 9926, 85 FR 76935, Nov. 30, 2020]