Tax & Accounting Blog

Why Nature of Income Paid to Foreign Vendors Matters Part 5 – Unknown Source of Income

1042-S, International Reporting & Compliance, ONESOURCE, ONESOURCE Nonresident Alien Taxation, Tax Information Reporting August 26, 2013

5770AP must also know whether or not the income being paid is U.S.-source in order to withhold and report correctly. During an audit, the IRS will request evidence supporting foreign-source payments such as contracts, invoices, expense reports and so forth. If a payment to a foreign vendor includes both U.S.- and foreign-source income and no breakdown is provided, the payer must withhold on the full amount. For example, a royalty payment made for use of an intangible both in and outside the United States is subject to 30 percent withholding unless an allocation between U.S. and foreign sources is provided based on where the intangible was used.

Editor’s Note:
Visit Paula’s blog archive page to read her posts on payments to foreign individuals and entities, as well as the other posts in this series.
Thomson Reuters ONESOURCE Nonresident Alien Taxation has a number of webcasts to help organizations understand payments to foreign students, workers, and vendors. Visit our webcast page to view a complete schedule and register for a webcast.

Editor’s Note:
Visit Paula’s blog archive page to read her posts on payments to foreign individuals and entities, as well as the other posts in this series.

Thomson Reuters ONESOURCE Nonresident Alien Taxation has a number of webcasts to help organizations understand payments to foreign students, workers, and vendors. Visit our webcast page to view a complete schedule and register for a webcast.