Rev. Rul. 54-584

Advice has been requested, in view of O.D. 985, C.B. 5, 194 (1921), whether the tax withheld under the provisions of section 143(b) of the Internal Revenue Code of 1939 from wages paid to a nonresident alien employee (such as an entertainer, or trainee receiving technical training under an on-the-job training program, who is only temporarily in the United States in that connection) may be refunded direct to such nonresident alien employee if he files an appropriate income tax return and pays the tax, if any, due thereon, providing the employer (withholding agent) has not yet paid the amount of tax withheld to the District Director of Internal Revenue.

O.D. 985, supra , provides that `A `A withholding agent is not relieved from obligation to pay to the Federal Government the amount of tax correctly withheld from the income of a nonresident alien by reason of the fact that the nonresident alien has filed a return showing no tax liability.'

Under section 143(b) of the Code, withholding of tax is required on payments of fixed or determinable annual or periodical income from sources within the United States, including wages, made to nonresident aliens. A nonresident alien performing personal services within the United States is, with certain exceptions, deemed to be engaged in a trade or business within the United States. See section 39.211-7(e) of Regulations 118. Every person required to deduct and withhold such tax shall, on or before March 15 of each year, make return thereof and pay the tax to the District Director of Internal Revenue. See section 143(c) of the Code. Section 143(e), however provides that `If any tax required under this section to be deducted and withheld is paid by the recipient of the income, it shall not be recollected from the withholding agent; nor in cases in which the tax is so paid shall any penalty be imposed upon or collected from the recipient of the income or the withholding agent for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading payment.'

It is held that the provisions of section 143(e) of the Code and the regulations issued thereunder fully justify the refund direct to a nonresident alien employee (engaged in a trade or business in the United States) of the full amount of the tax withheld from his wages under the provisions of section 143(b) of the Code and not yet paid to the District Director of Internal Revenue, if the nonresident alien employee files the appropriate return and pays the amount of tax, if any, as disclosed to be due thereon without claiming credit for such tax withheld; or the release of the excess of tax withheld over the amount due on the return if the employee has not paid the amount due.

In order for the nonresident alien employee to obtain the refund of the tax withheld under section 143(b) of the Code direct from his employer, he must:

1. Secure his employer's agreement to refund the tax withheld directly to him, and obtain from his employer, in addition to his agreement to make such refund, a sworn statement showing the amounts of wages paid and tax withheld.

2. File the appropriate return (Form 1040B, United States Nonresident Alien Income Tax Return, or Form 1040C, United States Departing Alien Income Tax Return) together with the statement obtained from the employer with the appropriate District Director of Internal Revenue.

3. Secure a receipt or statement from the District Director that will satisfactorily indicate to his employer that returns were properly filed and that:

a. The amount of the tax liability shown on the return without claiming credit for the tax withheld under section 143(b) of the Code was paid in full, or

b. Where such liability was not paid, that credit only in the amount equal to the tax liability shown on the return was claimed, or

c. The return filed disclosed no tax liability and no credit claimed for the tax withheld; and that

d. A refund of withheld tax in a stated amount may be made directly to the employee.

4. Furnish to the employer the receipt or statement from the District Director.

Accordingly, O.D. 985, C.B. 5, 194 (1921) is modified to the extent it is inconsistent with the provisions of this Revenue Ruling.