Tax & Accounting Blog

NRA Withholding and Reporting on Payments to Foreign Nationals – Part 6: What Would Give Me Reason to Know That the Recipient Is a Nonresident Alien?

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management July 9, 2012

The IRS has addressed the facts that would cause a payer who has no actual information about a recipient to have a reason to know that the recipient might be a nonresident alien:

  • The individual is not a U.S. citizen or immigrant (popularly called a green-card holder). A nonimmigrant is a U.S. person only if substantially present in the U.S. under the 183-Day Substantial Presence Test.
  • The individual has not provided a U.S. Social Security Number (SSN). U.S. citizens and green-card holders may obtain a SSN.  However, nonimmigrants with work authorization may obtain a SSN whether they are resident aliens or nonresident aliens.
  • A recipient has an Individual Taxpayer Identification Number (ITIN). An individual not eligible to obtain a SSN may obtain an ITIN for a federal tax administration purpose, such as submitting a U.S. tax return or claiming a treaty-exemption from tax. Possession of an ITIN does not mean that a recipient is a resident alien since anyone with a federal tax administration purpose, including foreign nationals outside the U.S., may obtain an ITIN.
  • The recipient has a foreign address. U.S. citizens and residents living abroad will have a foreign address as well as nonresident aliens. A U.S. citizen or green-card holder may rebut this presumption by presenting you with proof of  U.S. status such as a U.S. passport or Form I-551 (evidence of green-card status) respectively.
  • The payment is being transmitted to a foreign financial account. A recipient who has a U.S. SSN whose payment is being sent to a foreign account might be a nonresident alien. The SSN might have been issued long ago when the individual was authorized to work in the U.S.

For more information about what the IRS looks for in a 1042 audit of accounts payable, see IRM 4.10.21 Examination of Returns, U.S. Withholding Agents, Examinations Form 1042.