Taxpayer Identification Numbers (TIN)

A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS. Taxpayer Identification Numbers Social Security Number “SSN“ Employer Identification Number “EIN“ Individual Taxpayer Identification Number “ITIN“ Taxpayer Identification Number for Pending U.S. Adoptions “ATIN“ Preparer Taxpayer Identification Number “PTIN“ Note: The temporary IRS Numbers previously assigned are no longer valid. Do I Need One? A TIN must be furnished on returns, statements, and other tax related documents. For example a number must be furnished: When filing your tax returns – A change in IRC section 6109 regulations in 1996 mandates the use of a TIN on tax returns. When claiming treaty benefits – There was a change in the IRC section 1441 regulations in 2001 which mandates the use of a TIN in order to claim tax treaty benefits. A TIN must be on a withholding certificate if the beneficial owner is claiming any of the following: Tax treaty benefits (other than for income from marketable securities) Exemption for effectively connected income Exemption for certain annuities When Claiming Exemptions for Dependent or Spouse: You generally must list on your individual income tax return the social security number (SSN) of any person for whom you claim an exemption. If your dependent or spouse does not have and is not eligible to get an SSN, you must list the ITIN instead of an SSN. You do not need an SSN or ITIN for a child who was born and died in the same tax year. Instead of an SSN or ITIN, attach a copy of the child’s birth certificate and write Died on the appropriate exemption line of your tax return. How Do I Get A TIN? SSN You will need to complete Form SS-5, Application for a Social Security Card (PDF). You also must submit evidence of your identity, age, and U.S. citizenship or lawful alien status. For more information please see the Social Security web site. Form SS-5 is also available by calling 1-800-772-1213 or visiting your local Social Security office. These services are free. EIN An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to identify a business entity. Refer to Employer ID Numbers for more information. The following form is available only to employers located in Puerto Rico, Solicitud de Número de Identificación Patronal (EIN) SS-4PR (PDF). ITIN An ITIN, or Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number “9″, formatted like an SSN (NNN-NN-NNNN). To obtain an ITIN, you must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number (PDF) . The Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. You may either mail the documentation, along with the Form W-7, to the address shown in the Form W-7 Instructions, present it at IRS walk-in offices, or process your application through an Acceptance Agent authorized by the IRS. Form W-7(SP), Solicitud de Número de Identificación Personal del Contribuyente del Servicio de Impuestos Internos (PDF) is available for use by Spanish speakers. Acceptance Agents are entities (colleges, financial institutions, accounting firms, etc.) who are authorized by the IRS to assist applicants in obtaining ITINs. They review the applicant’s documentation and forward the completed Form W-7 to IRS for processing. NOTE: You cannot claim the earned income credit using an ITIN. Foreign persons who are individuals should apply for a social security number (SSN, if permitted) on Form SS-5 with the Social Security Administration, or should apply for an Individual Taxpayer Identification Number (ITIN) on Form W-7. Effective immediately, each ITIN applicant must now: Apply using the revised Form W-7, Application for IRS Individual Taxpayer Identification Number; and Attach a federal income tax return to the Form W-7. Applicants who meet an exception to the requirement to file a tax return (see the instructions for Form W-7) must provide documentation to support the exception. New W-7/ITIN rules were issued on December 17, 2003. For a summary of those rules, please see the new Form W-7 and its instructions. For more detailed information on ITINs, refer to: ITIN FAQ’s in English ITIN FAQ’s in Spanish Obtaining an ITIN from Abroad Reminders for Tax Professionals ITIN’s and FIRPTA Tax Forms December, 2003 Revisions to ITIN Process ITIN Products Filing Forms W-2 and 1042-S Without Payee TIN’s Acceptance Agent Program for ITIN’s How to Become an Acceptance Agent for IRS ITIN Numbers Publication 1915, Understanding Your Individual Taxpayer Identification Number (PDF) ATIN An Adoption Taxpayer Identification Number (ATIN) is a temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return. Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions (PDF) is used to apply for an ATIN. (NOTE: Do not use Form W-7A if the child is not a U.S. citizen or resident.) PTIN Apply for a Preparer Tax Identification Number (PTIN) only if you are a paid tax return preparer and you do not want to disclose your Social Security Number (SSN) on returns you prepare. If you use a PTIN, you will meet the requirement under IRC section 6109(a)(4) of furnishing your identifying number on returns you prepare. The PTIN cannot be used in place of the Employer Identification Number (EIN) of the tax preparation firm. To request a PTIN online go to e-services – Online Tools for Tax Professionals. Once you have registered, follow the online instructions to have a PTIN assigned. Form W-7P, Application for Preparer Tax Identification Number is used to apply for a PTIN (PDF). Foreign Persons and IRS Employer Identification Numbers Foreign entities that are not individuals (i.e., foreign corporations, etc.) and that are required by Treasury Regulation 1.1441-1(e)(4)(viii) to have a federal Employer Identification Number (EIN) in order to claim an exemption from withholding because of a tax treaty (claimed on Form W-8BEN) need to submit Form SS-4 Application for Employer Identification Number to the Internal Revenue Service in order to apply for such an EIN. Those foreign entities filing Form SS-4 for the purpose of obtaining an EIN in order to claim a tax treaty exemption and which otherwise have no requirements to file a U.S. income tax return, employment tax return, or excise tax return, should comply with the following special instructions when filling out Form SS-4. When completing line 7 of Form SS-4, the applicant should write “N/A” in the block asking for an SSN or ITIN, unless the applicant already has an SSN or ITIN. When answering question 10 on Form SS-4, the applicant should check the “other” block and write or type in immediately after it one of the following phrases as most appropriate: “For W-8BEN Purposes Only” “For Tax Treaty Purposes Only” “Required under Reg. 1.1441-1(e)(4)(viii)” “897(i) Election” If questions 11 through 17 on Form SS-4 do not apply to the applicant because he has no U.S. tax return filing requirement, such questions should be annotated “N/A”. A foreign entity that completes Form SS-4 in the manner described above should be entered into IRS records as not having a filing requirement for any U.S. tax returns. However, if the foreign entity receives a letter from the IRS soliciting the filing of a U.S. tax return, the foreign entity should respond to the letter immediately by stating that it has no requirement to file any U.S. tax returns. Failure to respond to the IRS letter may result in a procedural assessment of tax by the IRS against the foreign entity. If the foreign entity later becomes liable to file a U.S. tax return, the foreign entity should not apply for a new EIN, but should instead use the EIN it was first issued on all U.S. tax returns filed thereafter. To expedite the issuance of an EIN for a foreign entity, please call 215-516-6999. This is not a toll-free call. References/Related Topics Taxation of Nonresident Aliens Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Expatriation Tax

The expatriation tax provisions under Section 877 and Section 877A of the Internal Revenue Code (IRC) apply to US citizens who have renounced their citizenship and long-term residents (as defined in IRC 877(e)) who have ended their US resident status for federal tax purposes. Different rules apply according to the date upon which you expatriated. Expatriation on or after June 16, 2008 Expatriation after June 3, 2004 and before June 16, 2008 Expatriation on or before June 3, 2004 What to do if you haven’t filed a Form 8854 What to do if you haven’t filed an Income Tax Return Significant Penalty Imposed for Not Filing Expatriation Form Expatriation on or after June 16, 2008 If you expatriated after June 16, 2008, new expatriation rules apply to you if any of the following statements apply. Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than $139,000 (if you expatriated or terminated residency before January 1, 2009). Your net worth is $2 million or more on the date of your expatriation or termination of residency. You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.   Note. If you expatriated before June 17, 2008, the expatriation rules in effect at that time continue to apply. See chapter 4 in Publication 519, U.S. Tax Guide for Aliens., for more information. Expatriation after June 3, 2004 and before June 16, 2008 The American Jobs Creation Act (AJCA) of 2004 amends Section 877 of the Internal Revenue Code (IRC), which provides for an alternative tax regime for certain, expatriated individuals. Amended IRC 877 eliminates the tax avoidance criteria for imposition of the expatriation tax on certain types of income for 10 years following expatriation, and creates objective criteria to impose the tax on individuals with an average income tax liability of $127,000 for tax year 2005 (or higher amount for later years) for the 5 prior years or a net worth of $2,000,000 on the date of expatriation. In addition, it requires individuals to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation and requires annual information reporting for each taxable year during which an individual is subject to the rules of IRC 877. Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.  Finally, even if they do not meet the monetary thresholds for imposition of the IRC 877 expatriation tax, the new law provides that individuals will continue to be treated as U.S. citizens or long-term residents for U.S. tax purposes until they have notified the Secretary of the Department of State or of Homeland Security of expatriation or termination of residency.  The implementation date of this provision is retroactive and applies to expatriations occurring after June 3, 2004.  The expatriation is not effective until the notification and tax satisfaction certifications are filed with the IRS and the Department of State or of Homeland Security. Form 8854, Initial and Annual Expatriation Information Statement (PDF), has been revised to permit individuals to meet the new notification and information reporting requirements imposed by AJCA.  In particular, Form 8854 has been expanded so that it functions as both the initial and the annual expatriation information statements required by AJCA.  Revised Form 8854 and its instructions (PDF) also address how individuals should certify (in accordance with the new law) that they have met their federal tax obligations for the five preceding taxable years and what constitutes notification to the Department of State or the Department of Homeland Security. IRS Notice 2005-36 provides special rules for individuals who file the revised Form 8854 by June 15, 2005.  Treasury and the IRS recognize that until the revised Form 8854 was released, individuals who lost U.S. citizenship or terminated long-term resident status after June 3, 2004 did not know how to meet the new notification and information reporting requirements imposed by AJCA.  Accordingly, Notice 2005-36 provides that if an individual who loses U.S. citizenship or terminates long-term resident status after June 3, 2004 files the revised Form 8854 by June 15, 2005, the individual will be treated as having met his or her reporting obligations on the date on which the taxpayer provided the requisite notice to the Department of State or the Department of Homeland Security. Expatriation on or before June 3, 2004 The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their US residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes. You are presumed to have tax avoidance as a principle purpose if: Your average annual net income tax for the last 5 tax years ending before the date of the action is more than $124,000, or Your net worth on the date of the action is $622,000 or more. If you meet either of the tests shown above, you may be eligible to request a ruling from the IRS that you did not expatriate to avoid U.S. taxes. You must request this ruling within one year from the date of expatriation. For information that must be included in your ruling request, see Section IV of Notice 97-19. If you receive this ruling, the expatriation tax provisions do not apply. The expatriation tax applies to the 10-year period following the date of the expatriation action.  Individuals that renounced their US citizenship and long-term residents that terminated their US residency for tax purposes on or before June 3, 2004 must file an initial Form 8854, Initial and Annual Expatriation Information Statement.  For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens. Form 8854, Initial and Annual Expatriation Information Statement (PDF) Instructions for Form 8854 (PDF) Notice 2005-36, Form 8854 and Expatriation Reporting Rules (PDF) Press Release IR-2005-49 (issued 4/22/05), IRS, Treasury Release Guidance on Expatriation Reporting Requirements What to do if you haven’t filed a Form 8854 Individuals that renounced their US citizenship or terminated their long-term resident status for tax purposes on or before June 3, 2004 must file a Form 8854 to comply with the notification requirements under IRC 877.  For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.. Individuals that renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 must file a Form 8854 to effect the expatriation tax provisions under IRC 877.  Furthermore, pursuant to new IRC 7701(n), until such individuals both files a Form 8854 with the IRS and notifies either the Department of State or of Homeland Security of their expatriation or termination of long-term resident status for tax purposes, such individuals will continue to be treated as if they were still US citizens or residents for tax purposes. For such individuals that expatriated after June 3, 2004 and have not filed an initial Form 8854 refer to IRS Notice 2005-36, Form 8854 and Expatriation Reporting Rules, for important transition information effective through June 15, 2005. Also, for individuals that expatriated after June 3, 2004, IRC 6039G requires annual information reporting for each taxable year during which such an individual is subject to the rules of IRC 877.  The annual Form 8854 is due on the date that the individual’s U.S. income tax return for the taxable year is due or would be due if such a return were required to be filed. Form 8854, Initial and Annual Expatriation Information Statement, has been revised to permit individuals that expatriated after June 3, 2004 to meet the new notification and information reporting requirements under IRC 6039G. For more detailed information on how, when and where to file Form 8854, refer to the Instructions for Form 8854. What to do if you haven’t filed an Income Tax Return Among the various new requirements contained in IRC 877 (as outlined in the Expatriation after June 3, 2004 section above), individuals that renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation.  If all federal tax requirements have not been satisfied for the 5 years prior to expatriation, even if the individual does not meet the monetary thresholds in IRC 877, the individual will be subject to the IRC 877 expatriation tax provisions. Individuals that have expatriated should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved. For more detailed information on what to do if you have not filed your required federal income tax returns, refer to Haven’t Filed an Income Tax Return? Here’s What to Do. Significant penalty imposed for not filing expatriation form The Internal Revenue Service reminds practitioners that anyone who has expatriated or terminated his U.S. residency status must file Form 8854, Initial and Annual Expatriation Information Statement (PDF). Form 8854 must also be filed to comply with the annual information reporting requirements of Internal Revenue Code section 6039G, if the person is subject to tax under Section 877 of the Code. A $10,000 penalty may be imposed for failure to file Form 8854 when required. IRS is sending notices to expatriates that have not complied with the Form 8854 requirements, including the imposition of the $10,000 penalty where appropriate. The Instructions for Form 8854 (PDF) provide details about the filing requirements, related definitions and line-by-line instructions for completing the form. Failure to file or not including all the information required by the form or including incorrect information could lead to a penalty. For further information refer to Notice 2005-36, found in Internal Revenue Bulletin 2005-19 provides legal guidance about the changes to Form 8854 and the Expatriation Reporting Rules. References/Related Topics U.S. Citizens and Resident Aliens Abroad Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Classification of Taxpayers for U.S. Tax Purposes

U.S. law treats U.S. persons and foreign persons differently for tax purposes. Therefore, it is important to be able to distinguish between these two types of taxpayers. United States Persons The term ”United States person” means: A citizen or resident of the United States A domestic partnership A domestic corporation Any estate other than a foreign estate Any trust if: A court within the United States is able to exercise primary supervision over the administration of the trust, and One or more United States persons have the authority to control all substantial decisions of the trust Any other person that is not a foreign person. Foreign Persons A foreign person includes: Nonresident alien individual Foreign corporation Foreign partnership Foreign trust A foreign estate Any other person that is not a U.S. person Generally, the U.S. branch of a foreign corporation or partnership is treated as a foreign person. Refer to IRC 7701(a)(31) for the definition of a foreign estate and a foreign trust. Check-the-box Entities (See Form 8832 and Instructions) (PDF) For Federal tax purposes, certain business entities automatically are classified as corporations. Other business entities may choose how they are classified for Federal tax purposes. Except for a business entity automatically classified as a corporation, a business entity with at least two members can choose to be classified as either an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner.

Taxation of Dual-Status Aliens

You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year. Dual status does not refer to your citizenship, only to your resident status for tax purposes in the United States. In determining your U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident. The most common dual-status tax years are the years of arrival and departure. For The Part of the Year You are a Resident Alien For the part of the year you are a resident alien, you are taxed on income from all sources. Income from sources outside the United States is taxable if you receive it while you are a resident alien. The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year. For The Part of The Year You are a Nonresident Alien For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources only. Not Effectively Connected Income Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U.S. citizen after receiving it and before the end of the year. Income From U.S. Sources Income from U.S. sources is taxable whether you receive it while a nonresident alien or a resident alien unless specifically exempt under the Internal Revenue Code or a tax treaty provision. Generally, tax treaty provisions apply only to the part of the year you were a nonresident. However, an exception to this rule exists. Refer to “Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens” found in Chapter 9 of Publication 519. When determining what income is taxed in the United States, you must consider exemptions under U.S. tax law as well as the reduced tax rates and exemptions provided by tax treaties between the United States and certain foreign countries. Restrictions for Filing Dual-Status Tax Returns The following restrictions apply if you are filing a tax return for a dual-status tax year: You cannot use the standard deduction allowed on Form 1040 (PDF). However, you can itemize certain allowable deductions. Special rules apply for exemptions for the part of the tax year a dual status taxpayer is a nonresident alien if the taxpayer is a resident of Canada, Mexico, The Republic of Korea (South Korea), a U.S. national, or a student or business apprentice from India. Refer to Aliens – How Many Exemptions Can Be Claimed. Subject to the general rules for qualification, you are allowed exemptions for your spouse and dependents in figuring taxable income for the part of the year you were a resident alien. The amount you can claim for these exemptions is limited to your taxable income (determined without regard to exemptions) for the part of the year you were a resident alien. Your total deduction for the exemptions for your spouse and allowable dependents cannot be more than your taxable income (figured without deducting personal exemptions) for the period you are a resident alien. You cannot use the head of household Tax Table column or Tax Rate Schedule. You cannot file a joint return (However, a dual status alien who is married to a U.S. citizen or a resident alien may elect to file a joint return with his or her spouse. Refer to Nonresident Spouse Treated as a Resident for more information). If you are married and a nonresident of the United States for all or part of the tax year and you do not choose to file jointly with your U.S. citizen or resident alien spouse, you must use the Tax Table column, or Tax Rate Schedule for married filing separately to figure your tax on income effectively connected with a U.S. trade or business. You cannot use the Tax Table column or Tax Rate Schedules for married filing jointly or single.  You may not take the earned income credit, the credit for the elderly or disabled, or an education credit unless you elect to be taxed as a resident alien as the spouse of a U.S. citizen or resident alien in lieu of these dual-status taxpayer rules. Different Rules When you figure your U.S. tax for a dual-status year, you are subject to different rules for the part of the year you are a resident and the part of the year you are a nonresident. Effectively and Not Effectively Connected Income All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of nonresidence, after allowable deductions, is combined and taxed at the rates that apply to U.S. citizens and residents. Income that is not connected with a trade or business in the United States for your period of nonresidence is subject to the flat 30% rate or lower treaty rate. You cannot take any deductions against this not effectively connected income. Refer to Taxation of Nonresident Aliens for more information. Resident Alien vs. Nonresident Alien The U.S. income tax return you must file as a dual-status alien depends on whether you are a resident alien or a nonresident alien at the end of the tax year. Resident Alien at End of Year You must file Form 1040, U.S. Individual Income Tax Return if you are a dual-status taxpayer who becomes a resident during the year and who is a U.S. resident on the last day of the tax year. Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a nonresident. You can use Form 1040NR, U.S. Nonresident Alien Income Tax Return (PDF) or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents (PDF) as the statement, but be sure to mark “Dual-Status Statement” across the top. Nonresident at End of Year You must file Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year. Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040, U.S. Individual Income Tax Return as the statement, but be sure to mark “Dual-Status Statement” across the top. Statement Any statement must have your name, address, and taxpayer identification number on it. You do not need to sign a separate statement or schedule accompanying your return, since your signature on the return also applies to the supporting statements and schedules. When and Where To File If you are a resident alien on the last day of your tax year and report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. In either case, file your return with the Internal Revenue Service Center indicated in the Form 1040 Instructions. If you are a nonresident alien on the last day of your tax year and you report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year if you receive wages subject to withholding. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. If you did not receive wages subject to withholding and you report your income on a calendar year basis, you must file no later than June 15 of the year following the close of your tax year. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 6th month following the close of your tax year. In any case, file your return with the Internal Revenue Service Center indicated in the Form 1040NR Instructions. References/Related Topics

Taxation of Nonresident Aliens

An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test. Who Must File If you are any of the following, you must file a return: A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if: Your income did not come from a trade or business conducted in the United States, You have no income from U.S. sources, or Your income is exempt from income tax. However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501), you are not required to file. A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source. A representative or agent responsible for filing the return of an individual described in (1) or (2), A fiduciary for a nonresident alien estate or trust, or A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)). NOTE: If you were a nonresident alien student, teacher, or trainee who was temporarily present in the United States on an “F,”"J,”"M,” or “Q” visa, you are considered engaged in a trade or business in the United States. You must file Form 1040NR (or Form 1040NR-EZ) only if you have income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. Refer to Foreign Students and Scholars for more information. Claiming a Refund or Benefit You must also file an income tax return if you want to: Claim a refund of overwithheld or overpaid tax, or Claim the benefit of any deductions or credits. For example, if you have no U.S. business activities but have income from real property that you choose to treat as effectively connected income, you must timely file a true and accurate return to take any allowable deductions against that income. Which Income to Report A nonresident alien’s income that is subject to U.S. income tax must generally be divided into two categories: Income that is Effectively Connected with a trade or business in the United States U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP) Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents. FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate) and no deductions are allowed against such income. Effectively Connected Income should be reported on page one of Form 1040NR. FDAP income should be reported on page four of Form 1040NR. Which Form to File Nonresident aliens who are required to file an income tax return must use: Form 1040NR (PDF) or,  Form 1040NR-EZ (PDF) if qualified. Refer to the Instructions for Form 1040NR-EZ to determine if you qualify. Find more information at Which Form to File. When and Where To File If you are an employee or self-employed person and you receive wages or non-employee compensation subject to U.S. income tax withholding, or you have an office or place of business in the United States, you must generally file by the 15th day of the 4th month after your tax year ends. For a person filing using a calendar year this is generally April 15. If you are not an employee or self-employed person who receives wages or non-employee compensation subject to U.S. income tax withholding, or if you do not have an office or place of business in the United States, you must file by the 15th day of the 6th month after your tax year ends. For a person filing using a calendar year this is generally June 15. File Form 1040NR-EZ and Form 1040NR at the address shown in the instructions for Form 1040NR-EZ and 1040NR. Extension of time to file If you cannot file your return by the due date, you should file Form 4868 (PDF) to request an automatic extension of time to file. You must file Form 4868 by the regular due date of the return. You Could Lose Your Deductions and Credits To get the benefit of any allowable deductions or credits, you must timely file a true and accurate income tax return. For this purpose, a return is timely if it is filed within 16 months of the due date just discussed. The Internal Revenue Service has the right to deny deductions and credits on tax returns filed more than 16 months after the due dates of the returns. Refer to When To File in Chapter 7 of Publication 519, U.S. Tax Guide for Aliens (PDF) for additional details. Departing Alien Before leaving the United States, all aliens (with certain exceptions) must obtain a certificate of compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You will receive a sailing or departure permit after filing a Form 1040-C (PDF) or Form 2063 (PDF). Even if you have left the United States and filed a Form 1040-C, U.S. Departing Alien Income Tax Return (PDF), on departure, you still must file an annual U.S. income tax return. If you are married and both you and your spouse are required to file, you must each file a separate return, unless one of the spouses is a U.S. citizen or a resident alien, in which case the departing alien could file a joint return with his or her spouse (Refer to Nonresident Spouse Treated as a Resident).

Alien Taxation – Certain Essential Concepts

The taxation of aliens involves certain essential concepts as follows. Resident Aliens A resident alien’s income is generally subject to tax in the same manner as a U.S. citizen. If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether from sources within or outside the United States. Nonresident Aliens A nonresident alien usually is subject to U.S. income tax only on U.S. source income. Under limited circumstances, certain foreign source income is subject to U.S. tax. Dual-Status Aliens You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year. Source of Income A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. Income Types In general, all income of a nonresident alien is Fixed, Determinable, Annual, Periodical (FDAP) income. However, certain kinds of FDAP income are considered to be effectively connected with a U.S. trade or business. These two types of income are taxed in different ways. Reporting your Income in U.S. Currency You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income, or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. Tax Withholding on Foreign Persons Payments of income to foreign persons are subject to special withholding rules. In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income. This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service. Foreign Students and Scholars Special rules apply to the taxation of foreign students and scholars which do not apply to other kinds of aliens. Taxpayer Identification Numbers (TIN) Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN). In addition, aliens who request tax treaty exemptions or other exemptions from withholding must also have a TIN. Tax Treaties The U.S. tax liability of aliens is determined primarily by the provisions of the U.S. Internal Revenue Code. However, the United States has entered into certain agreements known as tax treaties with several foreign countries which oftentimes override or modify the provisions of the Internal Revenue Code. U.S. Person cf. IRC 7701(a)(30) and Treas.Reg. 1.1441-1(c)(2) The term ‘United States person’ means: A citizen or resident of the United States, A partnership created or organized in the United States or under the law of the United States or of any State, A corporation created or organized in the United States or under the law of the United States or of any State, Any estate or trust other than a foreign estate or foreign trust. See Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust, or Any other person that is not a foreign person. Foreign Person cf. Treas.Reg. 1.1441-1(c)(2) The term “foreign person” means: A nonresident alien individual; A corporation created or organized in a foreign country or under the laws of a foreign country; A partnership created or organized in a foreign country or under the laws of a foreign country; A foreign trust; A foreign estate, or Any other person that is not a U.S. person. See Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust.

IRS Silent Amidst Estate Tax Chaos

From Tax Prof Blog, Sunday, February 7, 2010.  Wall Street Journal, IRS Silent So Far On New US Tax Rules For Inherited Wealth, by Martin Vaughan: The IRS is taking a wait-and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again. Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates. … Congress might pass legislation that reinstates the estate tax for 2010 and eliminates the carry-over basis rules, which would make all such planning moot. That may explain why IRS for now is waiting for the legislative picture to come into focus. Another option that is getting some discussion by congressional staff is an election that would allow the family members of people who died between Jan. 1, 2010 and when new legislation takes effect to choose between paying estate taxes, for example at the rates in effect in 2009, or the capital gains-tax regime under the current law.

Certain Cash Contributions for Haiti Relief Can Be Deducted on Your Tax Return

Certain Cash Contributions for Haiti Relief Can Be Deducted on Your 2009 Tax Return.

 A new law allows you to choose to deduct certain charitable contributions of money on your 2009 tax return instead of your 2010 return. The contributions must have been made after January 11, 2010, and before March 1, 2010, for the relief of victims in areas affected by the January 12, 2010, earthquake in Haiti. Contributions of money include contributions made by cash, check, money order, credit card, charge card, debit card, or via cell phone. The new law was enacted after the 2009 forms, instructions, and publications had already been printed. When preparing your 2009 tax return, you may complete the forms as if these contributions were made on December 31,2009, instead of in 2010. To deduct your charitable contributions, you must itemize deductions on Schedule A (Form 1040) or Schedule A (Form 1040NR). The contribution must be made to a qualified organization and meet all other requirements for charitable contribution deductions. However, if you made the contribution by phone or text message, a telephone bill showing the name of the donee organization, the date of the contribution, and the amount of the contribution will satisfy the recordkeeping requirement. Therefore, for example, if you made a $10 charitable contribution by text message that was charged to your telephone or wireless account, a bill from your telecommunications company containing this information satisfies the record keeping requirement.

Joint Tax Committee Releases List of Expiring Federal Tax Provisions, 2009-2020

From TaxProf Blog, January 30, 2010.  The Joint Committee on Taxation yesterday released List of Expiring Federal Tax Provisions 2009-2020 (JCX-3-10): This document, prepared by the staff of the Joint Committee on Taxation, provides a listing of Federal tax provisions (other than those providing time-limited transition relief after the repeal of an underlying rule) that are currently scheduled to expire in 2009-2020 (with references to the applicable section of the Internal Revenue Code of 1986 or other applicable law). Expiring Federal tax provisions providing temporary disaster relief are separately listed in Part II of the document. For purposes of compiling this list, the staff of the Joint Committee on Taxation considers a provision to be expiring if, at a statutorily specified date, the provision expires completely or reverts to the law in effect before the present-law version of the provision. Certain provisions terminate on dates that refer to a taxpayer’s taxable year and not a calendar year. For these provisions, the expiration dates listed in this document apply with respect to calendar year taxpayers. The expiration dates of such provisions may differ, however, with respect to fiscal year taxpayers or taxpayers with short taxable years. January 30, 2010 in Congressional News, Gov’t Reports, Tax | Permalink

Cross-Border Tax Issues

 By JAMES COLLINS , JOURNAL OF ACCOUNTANCY, FEBRUARY 2010 CFOs can exercise reasonable diligence to ensure that they have procedures in place to deal with some of the more common shortcomings in cross-border tax compliance. The following are some routine tax compliance situations that U. S. companies ($500 million or less in sales) with outbound activities are most likely to encounter:

1.  Ensure that intercompany working capital accounts to the parent company and among foreign affiliates are settled every 120 days or that market interest is charged on overdue receivables. Buildups of intercompany payables to a foreign parent or affiliate, without regular and ongoing settlement, can cause the IRS to impute interest income to the creditor for U.S. tax purposes.

2. Document foreign payments at reduced or zero rates of withholding tax. The payer is liable for withholding tax that it fails to withhold and bears the burden of proof that the proper amount has been withheld. Prudent CFOs will periodically test to ensure that their accounts payable personnel are familiar with foreign withholding tax rules and are maintaining proper documentation for payments made overseas.

3. Address intercompany cross-border pricing issues. The ultimate protection against IRS tax assessments on pricing issues is an advanced pricing agreement (APA) whereby the IRS abides by intercompany pricing it has already reviewed with the taxpayer and its representatives (usually an economist, accountant or lawyer). The next level of security is a pricing study whereby a professional firm compiles and reviews a company’s intercompany pricing arrangements, analyzes them, and issues a report. Finally, a company can greatly reduce the exposure for routine transactions by finding comparable transactions with unrelated parties and ensuring that charges and costs for transactions among related companies are comparably priced.

4. Determine tax status of foreign affiliates. If a U.S. company owns shares in a foreign company, it may qualify as a passive foreign investment company if it has a high proportion of assets or income that is passive. For this purpose, cash is considered a passive asset, so newly formed companies are especially vulnerable. If a U.S. company owns 10% or more of a foreign corporation, it should evaluate whether other U.S. shareholders that each own a 10% or greater interest own in aggregate an additional 40%. If they do, the foreign affiliate likely is a controlled foreign corporation, subject to the anti-deferral regime of subpart F of the Internal Revenue Code.

5. Ensure that interest expense due to foreign affiliates is deducted on a cash basis on the U.S. tax return. For tax purposes, interest accrued to foreign affiliates is usually deductible, but only when actually paid.

6. Evaluate whether the company is obligated to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, and Form 8865, Schedule O, Transfer of Property to a Foreign Partnership (under section 6038B). If a U.S. company owns 10% or more of a foreign-organized affiliate or it has contributed more than $100,000 in property to a foreign partnership during any 12-month period, the company should evaluate whether it must file Form(s) 8865 and Schedule O. File forms 5471 and 8865 with the tax return for each separate controlled foreign corporation or foreign partnership.

7. Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 8865 are required for each separate legal entity, even if the companies are organized in the same country and even if a subconsolidation of financial information for two or more separate foreign entities is available. —By James Collins (jcollins@friedmanllp.com), a senior manager at Friedman LLP in New York.