Tax & Accounting Blog

Withholding on U.S. Business Income of Foreign Vendors – Part 3: Effectively Connected Income Not Exempt from Withholding

Withholding on U.S. Business Income of Foreign Vendors – Part 3: Effectively Connected Income Not Exempt from Withholding

Non-U.S. individuals may use Form W-8ECI for their Effectively Connected Income (ECI), such as rents from U.S. real property for which the beneficial owner elected ECI treatment on Form 1040NR. Non-U.S. individuals are restricted by the regulations from using Form W-8ECI for their compensation for personal services performed in the U.S. (This restriction is indicated in the … Read More

Withholding on U.S. Business Income of Foreign Vendors – Part 2: Claiming Exemption from Withholding on Effectively Connected Income

Withholding on U.S. Business Income of Foreign Vendors – Part 2: Claiming Exemption from Withholding on Effectively Connected Income

A foreign enterprise that is engaged in a U.S. trade or business during the tax year may request an exemption from NRA withholding on its Effectively Connected Income (ECI) that is identified on line 9 of a valid Form W-8ECI presented to the payer prior to payment (unless an exemption is not available). To be valid, … Read More

Withholding on U.S. Business Income of Foreign Vendors – Part 1

Withholding on U.S. Business Income of Foreign Vendors – Part 1

Foreign vendors being paid by U.S. organizations may include foreign enterprises that are engaged in a U.S. trade or business. Income of a foreign vendor that is effectively connected with the enterprise’s U.S. trade or business is subject to U.S. income tax after allowable deductions at graduated rates. Such effectively connected income (called ECI), when paid by … Read More

Information Reporting on Form 1042-S: A New Challenge for Accounts Payable

Information Reporting on Form 1042-S: A New Challenge for Accounts Payable

Reporting income and taxes withheld on payments made to corporate vendors recently became more challenging for accounts payable (A/P) departments of both for-profit and not-for-profit organizations with the new IRS compliance focus on payments to nonresident alien individuals, foreign entities and foreign governments (collectively, foreign persons). A/P departments familiar with the ins and outs of Form … Read More

Penalties for Failure to Comply with NRA Withholding and 1042-S Information Reporting – Part 4: Penalty for Late Forms 1042-S for the Recipient

Penalties for Failure to Comply with NRA Withholding and 1042-S Information Reporting – Part 4: Penalty for Late Forms 1042-S for the Recipient

If a withholding agent fails to provide correct Forms 1042-S to recipients when due and cannot show reasonable cause, the withholding agent may be subject to a penalty for each failure. The IRS may also impose the penalty for failure to include all required information or for furnishing incorrect information on Form 1042-S. The penalty is … Read More

FATCA Proposed Regulations Are Issued by IRS

FATCA Proposed Regulations Are Issued by IRS

The long-awaited proposed tax regulations for FATCA, the Foreign Account Tax Compliance Act, were issued February 8 by the IRS.  An electronic copy is available at http://www.irs.gov/pub/newsroom/reg-121647-10.pdf .  FATCA imposes new disclosure obligations on foreign financial institutions that maintain U.S. accounts, and on certain non-financial foreign entities; and FATCA establishes new requirements to withhold … Read More