Caution: Nonresident Foreign Individuals Must Comply with New IRS Documentation Requirements when Filing a Form W-7 U.S. TIN Application
Depending on a foreign individual’s inbound activities in the United States, the person could be required to obtain a U.S. Taxpayer Identification Number (TIN) if the person is not eligible to obtain a U.S. Social Security Number (SSN). Foreign individuals who are required to obtain a U.S. Taxpayer Identification Number must file a Form W-7 with the Internal Revenue Service (IRS).
A U.S. TIN generally is required if a nonresident foreign individual is required to file a U.S. federal tax return on the Form 1040-NR. A nonresident foreign individual generally must file a Form 1040-NR if the person has income that is effectively connected with a U.S. trade or business. A nonresident foreign individual who has ordinary trade or business income from a U.S. partnership generally is considered to have effectively connected income that must be reported on a Form 1040-NR.
A U.S. TIN also could be required if Continue reading »
Caution: More than One Type of U.S. Federal Tax Withholding Could Be Required for Foreign Partners in a U.S. Partnership
It is very important for a U.S. partnership to determine the residence status of all partners in the partnership. A U.S. partnership is required to report whether a partner is a foreign partner on the Schedule K-1 filed with the Form 1065 federal partnership tax return. A partner is considered to be a foreign partner if the partner is a foreign company formed under the laws of a foreign country. A partner is considered to be a foreign partner if the partner is a foreign individual who is not a U.S. citizen, does not hold a U.S. green card or does not meet the substantial presence test to be treated as a U.S. resident for U.S. federal tax purposes. The U.S. partnership is also required to comply with Continue reading »
Caution: FIRPTA Withholding Exemption Certificates—Mirage or Oasis?
The Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) requires foreign persons who sell U.S. real property (or certain U.S. real property interests) to pay a 10% U.S. withholding tax on the gross sale proceeds. If the foreign person’s final U.S. tax liability on the gain from the sale of the U.S. real property interest is less than the 10% withholding tax then the foreign person can file a Form 8288-B to obtain a FIRPTA withholding exemption certificate. The IRS instructions to the Form 8288-B indicate that it could take the IRS 90 days to issue a withholding certificate after the Form 8288-B is filed. If the foreign seller receives the FIRPTA withholding certificate from the IRS prior to Continue reading »
Tax Tip: Tax Debt and the ‘Alter Ego’
In a recent Court of Appeals case (Berkshire Bank vs. Town of Ludlow MA and IRS, 1/11/2013) the Court ruled that an LLC owned by individual behind on his taxes was that individual’s alter ego. That is, the LLC and the individual were deemed to be one and the same, resulting in the assets of the LLC being available to satisfy the IRS tax debt.
Closely held businesses are in particular in danger of being seen as the alter ego of its owners. Common elements the IRS can use to find an alter ego relationship exists include Continue reading »
Fiscal Cliff Legislation Lets D.C. Empowerment Zone Incentives Expire
The “Fiscal Cliff” legislation (H.R. 8: American Taxpayer Relief Act of 2012) enacted by Congress earlier this month did not extend the tax benefits provided pursuant to Internal Revenue Code sections 1400 through 1400C with respect to District of Columbia Enterprise Zones (“DC Zones”). Although the legislation retroactively extended the Federal Empowerment Zone incentives for calendar years 2012 and 2013, the December 31, 2011 expiration date for the designation of certain DC Zones being eligible for empowerment zone designation was left unaddressed by the Fiscal Cliff legislation.
As a result, the following DC Zone incentives will no longer be available for tax years beginning on or after December 31, 2011: Continue reading »
The Importance of Sourcing Software License Royalty Income
If a U.S. company pays a royalty to a foreign company for the use of a software license, there is an issue regarding whether the royalty payment is considered to be U.S. source income to the foreign licensor. If the royalty is considered to be U.S. source income to the foreign licensor then I.R.C. Section 1442 U.S. nonresident tax withholding generally will apply at a rate of Continue reading »
Tax Tip: Home Office Deduction Safe Harbor
In a newly issued Revenue Procedure 2013-13, effective for tax years starting on or after 1/1/2013, the IRS has created a safe harbor for the home office deduction calculation. The safe harbor is $5 times the home office square footage, for a maximum of $1,500. The safe harbor is in lieu of the substantiation of actual expenses otherwise required under IRC 280A.
If the safe harbor is used:
- The safe harbor is the total deduction. No depreciation or any other costs can be taken in addition to the safe harbor amount.
- The taxpayer can take 100% of the mortgage interest and property taxes as an itemized deduction on schedule A. No reduction of these expenses are required.
- Disallowed home office expenses that were carried over from prior years cannot be used in the year the safe harbor is taken. These amounts continue to be carried over and are usable in a year in which actual (substantiated) expenses are claimed.
- The taxpayer can elect safe harbor or substantiated expenses year-by-year.
In general, to take the home office expense: Continue reading »
Cloudy with a Chance of Sales Tax in the DC Metro Area
The taxation of cloud computing services is an evolving area of sales and use tax. Cloud computing, which includes a wide variety of service offerings, generally allows businesses the potential to reduce IT costs by outsourcing hardware and software maintenance and support. Still, remote access to software, or “software as a service” (SaaS), is only a small part of what is referred to as “cloud computing.” The term also includes offerings such as Continue reading »
Evolve: Key Tax Provisions of “Fiscal Cliff” Legislation
You are probably aware that Congress passed legislation (the “American Taxpayer Relief Act”) early Wednesday morning, which the President is expected to sign into law to avert (or delay, depending on you viewpoint) the so-called “Fiscal Cliff.” While the legislation only delayed by two months widespread automatic spending cuts, it prevents many of the tax increases that were scheduled to take effect in 2013. With the exception of a targeted tax increase to the wealthiest Americans, the Act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and the Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (JGTRRA). It also permanently addresses Congress’ reoccurring task of “patching” the alternative minimum tax (AMT). Further, it temporarily extends many other tax provisions that had lapsed at the end of 2012 and others that had expired a year earlier. Among the tax items not addressed by the Act was the so-called “payroll tax holiday.” Thus, the temporary 4.2% rate for the employees’ portion of the Social Security payroll tax will revert back to 6.2%, effective January 1, 2013.
Below is a summary of the key tax provisions: Continue reading »
U.S. Treasury Department Releases Second Model Agreement to Implement FATCA
The Foreign Account Tax Compliance Act (“FATCA”) was enacted in the Hiring Incentives to Restore Employment Act of 2010 (Public Law 111-147). FATCA includes Sections 1471 to 1474 of the U.S. Internal Revenue Code. The purpose of FATCA is to target noncompliance with U.S. reporting requirements by U.S. taxpayers with foreign accounts.
On November 14, 2012, the U.S. Treasury Department released the Second Model Intergovernmental Agreement for Cooperation to Facilitate the Implementation of FATCA. The Second Model Agreement provides for direct reporting of information by foreign financial institutions (“FFIs”) to the IRS, supplemented by a government-to-government exchange of information pursuant to competent authority requests. The Second Model Agreement requires the “FATCA Partner” to fulfill Continue reading »
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- A Marriage of Inconvenience: GSA Schedule Contracts & The Contractor Code of Business Ethics & Conduct Clause
- Emerging Small Businesses: To Grow Your Business, You Must Plan For Growth
- Government Contracting: Look Before You Leap!
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- The GSA Schedule: Your Ticket to the Federal Market (May 2010)
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