Living with the Final Partnership Withholding Regulations

During the course of the 1990s, a succession of lawyers at the office of Associate Chief Counsel (International) of the Internal Revenue Service led a wise and ultimately successful effort to modernize the regulations under § § 1441 and 1442, dealing with the withholding of tax on investment income and services income from U.S. sources. Sections 1441 and 1442 are short on detailed rules and guidance but they affect hundreds of billions of cross-border payments in a great variety of circumstances. During the course of the effort, the government listened attentively to the principal constituency among withholding agents — the banking and financial industry. Although the product of that deliberation and consultation, i.e., the final regulations that became effective on January 1, 2001 (delayed a year by what turned out to be misplaced fears about bank IT departments' ability to deal with both the new regulations and “Y2K” in the same year), was not at every turn a model of clarity and accessibility, it was a model of responsible and responsive regulation