How do I get back a 25 percent withholding after failing to submit a nonresident form on time for an IRA with foreign stock?

by Ibolya Balog, CPA | Jul 30, 2018
askacpaicon

I have a small IRA that contained a stock called NRDM that had a cash merger. The stock is located in Israel, and I failed to get the nonresident form in on time and was subject to a 25 percent withholding. I am having trouble figuring out what forms I need to fill out to get my withholding returned, both for Israel and the U.S., and how to get it back in the account properly, as I am under distribution age. 

I am afraid you cannot receive a refund for the foreign taxes withheld.

To avoid double taxation, the U.S. tax code allows either a tax credit or a tax deduction for foreign taxes withheld. But that is only available for taxes imposed on income subject to U.S. income tax in the same year, thus it is not applicable to tax-deferred accounts such as IRAs or 401(k)s.
 
Only a few countries have tax treaties with the United States not to withhold taxes in IRA or 401(k) accounts.
  
Check out this article on the IRS website regarding foreign tax credit for more information. Additionally, I recommend you consult a professional for more insight and assistance.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Ibolya Balog, CPA, is an associate professor at Cedar Crest College in Allentown, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.

Search