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Tax Act Free 2012

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Tax Act Free 2012

Tax act free 2012 7. Tax act free 2012   Filing Information Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: What, When, and Where To FileResident Aliens Nonresident Aliens Amended Returns and Claims for Refund Other Forms You May Have To File PenaltiesCivil Penalties Criminal Penalties Introduction This chapter provides the basic filing information that you may need. Tax act free 2012 Topics - This chapter discusses: Forms aliens must file, When and where to file, Penalties, and Amended returns and claims for refund. Tax act free 2012 Useful Items - You may want to see: Forms (and Instructions) 1040 U. Tax act free 2012 S. Tax act free 2012 Individual Income Tax Return 1040A U. Tax act free 2012 S. Tax act free 2012 Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. Tax act free 2012 S. Tax act free 2012 Nonresident Alien Income Tax Return 1040NR-EZ U. Tax act free 2012 S. Tax act free 2012 Income Tax Return for Certain Nonresident Aliens With No Dependents See chapter 12 for information about getting these forms. Tax act free 2012 What, When, and Where To File What return you must file as well as when and where you file that return, depends on your status at the end of the tax year as a resident or a nonresident alien. Tax act free 2012 Resident Aliens Resident aliens should file Form 1040EZ, 1040A, or 1040 at the address shown in the instructions for that form. Tax act free 2012 The due date for filing the return and paying any tax due is April 15 of the year following the year for which you are filing a return (but see the Tip, later). Tax act free 2012 Under U. Tax act free 2012 S. Tax act free 2012 immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status. Tax act free 2012 Extensions of time to file. Tax act free 2012   You are allowed an automatic extension to June 15 to file if your main place of business and the home you live in are outside the United States and Puerto Rico on April 15. Tax act free 2012 You can get an extension of time to October 15 to file your return if you get an extension by April 15 (June 15 if you qualify for the June 15 extension). Tax act free 2012 Use Form 4868 to get the extension to October 15. Tax act free 2012 In addition to this 6-month extension, taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). Tax act free 2012 To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. Tax act free 2012 Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. Tax act free 2012   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350 (for U. Tax act free 2012 S. Tax act free 2012 citizens and resident aliens abroad who expect to qualify for special tax treatment). Tax act free 2012    If the due date for filing falls on a Saturday, Sunday, or legal holiday, the due date is the next day which is not a Saturday, Sunday, or legal holiday. Tax act free 2012 You may be able to file your return electronically. Tax act free 2012 See IRS e-file in your form instructions. Tax act free 2012 Nonresident Aliens Nonresident aliens who are required to file an income tax return should use Form 1040NR or, if qualified, Form 1040NR-EZ. Tax act free 2012 If you are any of the following, you must file a return. Tax act free 2012 A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during 2013. Tax act free 2012 (But see Exceptions , later. Tax act free 2012 ) 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. Tax act free 2012 S. Tax act free 2012 sources, or Your income is exempt from income tax. Tax act free 2012 A nonresident alien individual not engaged in a trade or business in the United States with U. Tax act free 2012 S. Tax act free 2012 income on which the tax liability was not satisfied by the withholding of tax at the source. Tax act free 2012 A representative or agent responsible for filing the return of an individual described in (1) or (2). Tax act free 2012 A fiduciary for a nonresident alien estate or trust. Tax act free 2012 You must also file if you want to: Claim a refund of overwithheld or overpaid tax, or Claim the benefit of any deductions or credits. Tax act free 2012 For example, if you have no U. Tax act free 2012 S. Tax act free 2012 business activities but have income from real property that you choose to treat as effectively connected income (discussed in chapter 4), you must timely file a true and accurate return to take any allowable deductions against that income. Tax act free 2012 For information on what is timely, see When to file for deductions and credits under When To File, later. Tax act free 2012 Exceptions. Tax act free 2012   You do not need to file Form 1040NR or Form 1040NR-EZ if you meet either of the following conditions. Tax act free 2012 Your only U. Tax act free 2012 S. Tax act free 2012 trade or business was the performance of personal services, and Your wages were less than $3,900, and You have no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty. Tax act free 2012 You were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa and you have no income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. Tax act free 2012 Even if you have left the United States and filed a Form 1040-C, U. Tax act free 2012 S. Tax act free 2012 Departing Alien Income Tax Return, on departure, you still must file an annual U. Tax act free 2012 S. Tax act free 2012 income tax return. Tax act free 2012 If you are married and both you and your spouse are required to file, you must each file a separate return. Tax act free 2012 Form 1040NR-EZ You can use Form 1040NR-EZ if all of the following conditions are met. Tax act free 2012 You do not claim any dependents. Tax act free 2012 You cannot be claimed as a dependent on someone else's U. Tax act free 2012 S. Tax act free 2012 tax return. Tax act free 2012 If you were married, you do not claim an exemption for your spouse. Tax act free 2012 Your taxable income is less than $100,000. Tax act free 2012 The only itemized deduction you can claim is for state and local income taxes. Tax act free 2012 Note. Tax act free 2012 Residents of India who were students or business apprentices may be able to take the standard deduction instead of the itemized deduction for state and local income taxes. Tax act free 2012 See chapter 5. Tax act free 2012 Your only U. Tax act free 2012 S. Tax act free 2012 source income is from wages, salaries, tips, taxable refunds of state and local income taxes, scholarship or fellowship grants, and nontaxable interest or dividends. Tax act free 2012 (If you had taxable interest or dividend income, you cannot use this form. Tax act free 2012 ) You are not claiming any adjustments to income other than the student loan interest deduction or scholarship and fellowship grants excluded. Tax act free 2012 You are not claiming any tax credits. Tax act free 2012 This is not an “expatriation return. Tax act free 2012 ” See Expatriation Tax in chapter 4. Tax act free 2012 The only taxes you owe are: The income tax from the Tax Table. Tax act free 2012 The social security and Medicare tax from Form 4137 or Form 8919. Tax act free 2012 You are not claiming a credit for excess social security and tier 1 RRTA tax withheld. Tax act free 2012 You are not filing Form 8959, to figure the amount of Additional Medicare Tax you owe and/or the amount of Additional Medicare Tax withheld by your employer, if any. Tax act free 2012 If you do not meet all of the above conditions, you must file Form 1040NR. Tax act free 2012 When To File If you are an employee and you receive wages subject to U. Tax act free 2012 S. Tax act free 2012 income tax withholding, you will generally file by the 15th day of the 4th month after your tax year ends. Tax act free 2012 For the 2013 calendar year, file your return by April 15, 2014. Tax act free 2012 If you are not an employee who receives wages subject to U. Tax act free 2012 S. Tax act free 2012 income tax withholding, you must file by the 15th day of the 6th month after your tax year ends. Tax act free 2012 For the 2013 calendar year, file your return by June 16, 2014 (because June 15 is a Sunday. Tax act free 2012 ) Extensions of time to file. Tax act free 2012   If you cannot file your return by the due date, file Form 4868 or use one of the electronic filing options explained in the Form 4868 instructions. Tax act free 2012 For the 2013 calendar year, this will extend the due date to October 15, 2014 (December 15, 2014, if the regular due date of your return is June 16, 2014). Tax act free 2012 You must file the extension by the regular due date of your return. Tax act free 2012   In addition to the 6-month extension to October 15, taxpayers whose main place of business is outside the United States and Puerto Rico and who live outside those jurisdictions can request a discretionary 2-month extension of time to file their returns (to December 15 for calendar year taxpayers). Tax act free 2012 To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. Tax act free 2012 Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. Tax act free 2012 When to file for deductions and credits. Tax act free 2012   To get the benefit of any allowable deductions or credits, you must timely file a true and accurate return. Tax act free 2012 For this purpose, a return is timely if it is filed within 16 months of the due date just discussed. Tax act free 2012 However, if you did not file a 2012 tax return and 2013 is not the first year for which you are required to file one, your 2013 return is timely for this purpose if it is filed by the earlier of: The date that is 16 months after the due date for filing your 2013 return, or The date the IRS notifies you that your 2013 return has not been filed and that you cannot claim certain deductions and credits. Tax act free 2012 The allowance of the following credits is not affected by this time requirement. Tax act free 2012 Credit for withheld taxes. Tax act free 2012 Credit for excise tax on certain uses of gasoline and special fuels. Tax act free 2012 Credit for tax paid by a mutual fund (or other regulated investment company) or a real estate investment trust on undistributed long-term capital gains. Tax act free 2012 Protective return. Tax act free 2012   If your activities in the United States were limited and you do not believe that you had any gross income effectively connected with a U. Tax act free 2012 S. Tax act free 2012 trade or business during the year, you can file a protective return (Form 1040NR) by the deadline explained above. Tax act free 2012 By filing a protective return, you protect your right to receive the benefit of deductions and credits in the event it is later determined that some or all of your income is effectively connected. Tax act free 2012 You are not required to report any effectively connected income or any deductions on the protective return, but you must give the reason the return is being filed. Tax act free 2012   If you believe some of your activities resulted in effectively connected income, file your return reporting that income and related deductions by the regular due date. Tax act free 2012 To protect your right to claim deductions or credits resulting from other activities, attach a statement to that return explaining that you wish to protect your right to claim deductions and credits if it is later determined that the other activities produced effectively connected income. Tax act free 2012   You can follow the same procedure if you believe you have no U. Tax act free 2012 S. Tax act free 2012 tax liability because of a U. Tax act free 2012 S. Tax act free 2012 tax treaty. Tax act free 2012 Be sure to also complete item L on page 5 of Form 1040NR. Tax act free 2012 Waiver of filing deadline. Tax act free 2012   The IRS may waive the filing deadline if you establish that, based on the facts and circumstances, you acted reasonably and in good faith in failing to file a U. Tax act free 2012 S. Tax act free 2012 income tax return (including a protective return) and you cooperate with the IRS in determining your U. Tax act free 2012 S. Tax act free 2012 income tax liability for the tax year for which you did not file a return. Tax act free 2012 Where To File If you are not enclosing a payment, file Form 1040NR-EZ and Form 1040NR at the following address. Tax act free 2012  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 If enclosing a payment, mail your return to:  Internal Revenue Service  P. Tax act free 2012 O. Tax act free 2012 Box 1303 Charlotte, NC 28201-1303 Aliens from the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands. Tax act free 2012    If you are a bona fide resident of the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands during your entire tax year and work temporarily in the United States, you must pay your income taxes to the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands and file your income tax returns at the following address. Tax act free 2012 Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. Tax act free 2012 Thomas, VI 00802   Report all income from U. Tax act free 2012 S. Tax act free 2012 sources, as well as income from other sources, on your return. Tax act free 2012 For information on filing U. Tax act free 2012 S. Tax act free 2012 Virgin Islands returns, contact the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands Bureau of Internal Revenue. Tax act free 2012   Chapter 8 discusses withholding from U. Tax act free 2012 S. Tax act free 2012 wages of U. Tax act free 2012 S. Tax act free 2012 Virgin Islanders. Tax act free 2012 Aliens from Guam or the Commonwealth of the Northern Mariana Islands. Tax act free 2012   If you are a bona fide resident of Guam or the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you must file your return with, and pay any tax due to, Guam or the CNMI. Tax act free 2012 Report all income, including income from U. Tax act free 2012 S. Tax act free 2012 sources, on your return. Tax act free 2012 It is not necessary to file a separate U. Tax act free 2012 S. Tax act free 2012 income tax return. Tax act free 2012    Bona fide residents of Guam should file their Guam returns at the following address. Tax act free 2012   Department of Revenue and Taxation Government of Guam P. Tax act free 2012 O. Tax act free 2012 Box 23607 GMF, GU 96921    Bona fide residents of the CNMI should file their CNMI income tax returns at the following address. Tax act free 2012   Department of Finance Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. Tax act free 2012 O. Tax act free 2012 Box 5234 CHRB Saipan, MP 96950   If you are not a bona fide resident of Guam or the CNMI, see Pub. Tax act free 2012 570, Tax Guide for Individuals With Income From U. Tax act free 2012 S. Tax act free 2012 Possessions, for information on where to file your return. Tax act free 2012 Amended Returns and Claims for Refund If you find changes in your income, deductions, or credits after you mail your return, file Form 1040X, Amended U. Tax act free 2012 S. Tax act free 2012 Individual Income Tax Return. Tax act free 2012 Also use Form 1040X if you should have filed Form 1040, 1040A, or 1040EZ instead of Form 1040NR or 1040NR-EZ, or vice versa. Tax act free 2012 If you amend Form 1040NR or Form 1040NR-EZ or file the correct return, attach the corrected return (Form 1040, Form 1040NR, etc. Tax act free 2012 ) to Form 1040X. Tax act free 2012 Print “Amended” across the top. Tax act free 2012 Ordinarily, an amended return claiming a refund must be filed within 3 years from the date your return was filed or within 2 years from the time the tax was paid, whichever is later. Tax act free 2012 A return filed before the final due date is considered to have been filed on the due date. Tax act free 2012 Other Forms You May Have To File You may be required to file information returns to report certain foreign income or assets, or monetary transactions. Tax act free 2012 FinCen Form 105 FinCEN Form 105 (formerly Customs Form 4790), Report of International Transportation of Currency or Monetary Instruments, must be filed by each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped, currency or other monetary instruments in a total amount of more than $10,000 at one time from the United States to any place outside the United States, or into the United States from any place outside the United States. Tax act free 2012 The filing requirement also applies to each person who receives in the United States currency or monetary instruments totaling more than $10,000 at one time from any place outside of the United States. Tax act free 2012 The term “monetary instruments” means the following: Coin and currency of the United States or of any other country, Travelers' checks in any form, Investment securities or stock in bearer form or otherwise in such form that title to them passes upon delivery, Negotiable instruments (including checks, promissory notes, and money orders) in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title to them passes upon delivery, and Checks, promissory notes, and money orders which are signed but on which the name of the payee has been omitted. Tax act free 2012 However, the term does not include: Checks or money orders made payable to the order of a named person which have not been endorsed or which contain restrictive endorsements, Warehouse receipts, or Bills of lading. Tax act free 2012 A transfer of funds through normal banking procedures (wire transfer) that does not involve the physical transportation of currency or monetary instruments is not required to be reported on FinCEN Form 105. Tax act free 2012 Filing requirements. Tax act free 2012   FinCEN Form 105 filing requirements follow. Tax act free 2012 Recipients. Tax act free 2012   Each person who receives currency or other monetary instruments in the United States must file FinCEN Form 105 within 15 days after receipt, with the Customs officer in charge at any port of entry or departure, or by mail at the following address. Tax act free 2012 Commissioner of Customs  Attention: Currency Transportation Reports Washington, DC 20229 Shippers or mailers. Tax act free 2012   If the currency or other monetary instrument does not accompany the person entering or departing the United States, FinCEN Form 105 can be filed by mail at the above address on or before the date of entry, departure, mailing, or shipping. Tax act free 2012 Travelers. Tax act free 2012   Travelers must file FinCEN Form 105 with the Customs officer in charge at any Customs port of entry or departure, when entering or departing the United States. Tax act free 2012 Penalties. Tax act free 2012   Civil and criminal penalties are provided for failing to file a report, filing a report containing material omissions or misstatements, or filing a false or fraudulent report. Tax act free 2012 Also, the entire amount of the currency or monetary instrument may be subject to seizure and forfeiture. Tax act free 2012 More information. Tax act free 2012   More information regarding the filing of FinCEN Form 105 can be found in the instructions on the back of the form. Tax act free 2012 Form 8938 You may have to file Form 8938, Statement of Specified Foreign Financial Assets, to report the ownership of specified foreign financial asset(s) if you are one of the following individuals. Tax act free 2012 A resident alien of the United States for any part of the tax year. Tax act free 2012 A resident alien of the United States who elects to be treated as a resident of a foreign country under the provisions of a U. Tax act free 2012 S. Tax act free 2012 income tax treaty. Tax act free 2012 See Effect of Tax Treaties in chapter 1. Tax act free 2012 A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return. Tax act free 2012 See chapter 1 for information about this election. Tax act free 2012 A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. Tax act free 2012 See Publication 570, Tax Guide for Individuals With Income From U. Tax act free 2012 S. Tax act free 2012 Possessions, for a definition of bona fide resident. Tax act free 2012 You must file Form 8938 if the total value of those assets exceeds an applicable threshold (the “reporting threshold”). Tax act free 2012 The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. Tax act free 2012 Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. Tax act free 2012 More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. Tax act free 2012 Penalties The law provides penalties for failure to file returns or pay taxes as required. Tax act free 2012 Civil Penalties If you do not file your return and pay your tax by the due date, you may have to pay a penalty. Tax act free 2012 You may also have to pay a penalty if you substantially understate your tax, file a frivolous tax submission, or fail to supply your taxpayer identification number. Tax act free 2012 If you provide fraudulent information on your return, you may have to pay a civil fraud penalty. Tax act free 2012 Filing late. Tax act free 2012   If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. Tax act free 2012 The penalty is based on the tax not paid by the due date (without regard to extensions). Tax act free 2012 The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. Tax act free 2012 Fraud. Tax act free 2012   If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%. Tax act free 2012 Return over 60 days late. Tax act free 2012   If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. Tax act free 2012 Exception. Tax act free 2012   You will not have to pay the penalty if you show that you failed to file on time because of reasonable cause and not because of willful neglect. Tax act free 2012 Paying tax late. Tax act free 2012   You will have to pay a failure-to-pay penalty of ½ of 1% (. Tax act free 2012 50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. Tax act free 2012 This penalty does not apply during the automatic 6-month extension of time to file period, if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return. Tax act free 2012   The monthly rate of the failure-to-pay penalty is half the usual rate (. Tax act free 2012 25% instead of . Tax act free 2012 50%) if an installment agreement is in effect for that month. Tax act free 2012 You must have filed your return by the due date (including extensions) to qualify for this reduced penalty. Tax act free 2012   If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued. Tax act free 2012 If a notice and demand for immediate payment is issued, the rate will increase to 1% at the start of the first month beginning after the day that the notice and demand is issued. Tax act free 2012   This penalty cannot be more than 25% of your unpaid tax. Tax act free 2012 You will not have to pay the penalty if you can show that you had a good reason for not paying your tax on time. Tax act free 2012 Combined penalties. Tax act free 2012   If both the failure-to-file penalty and the failure-to-pay penalty (discussed earlier) apply in any month, the 5% (or 15%) failure-to-file penalty is reduced by the failure-to-pay penalty. Tax act free 2012 However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. Tax act free 2012 Accuracy-related penalty. Tax act free 2012   You may have to pay an accuracy-related penalty if you underpay your tax because: You show negligence or disregard of rules or regulations, You substantially understate your income tax, You claim tax benefits for a transaction that lacks economic substance, or You fail to disclose a foreign financial asset. Tax act free 2012 The penalty is equal to 20% of the underpayment. Tax act free 2012 The penalty is 40% of any portion of the underpayment that is attributable to an undisclosed noneconomic substance transaction or an undisclosed foreign financial asset transaction. Tax act free 2012 The penalty will not be figured on any part of an underpayment on which the fraud penalty (discussed later) is charged. Tax act free 2012 Negligence or disregard. Tax act free 2012   The term “negligence” includes a failure to make a reasonable attempt to comply with the tax law or to exercise ordinary and reasonable care in preparing a return. Tax act free 2012 Negligence also includes failure to keep adequate books and records. Tax act free 2012 You will not have to pay a negligence penalty if you have a reasonable basis for a position you took. Tax act free 2012   The term “disregard” includes any careless, reckless, or intentional disregard. Tax act free 2012 Adequate disclosure. Tax act free 2012   You can avoid the penalty for disregard of rules or regulations if you adequately disclose on your return a position that has at least a reasonable basis. Tax act free 2012 See Disclosure statement , later. Tax act free 2012   This exception will not apply to an item that is attributable to a tax shelter. Tax act free 2012 In addition, it will not apply if you fail to keep adequate books and records, or substantiate items properly. Tax act free 2012 Substantial understatement of income tax. Tax act free 2012   You understate your tax if the tax shown on your return is less than the correct tax. Tax act free 2012 The understatement is substantial if it is more than the larger of 10% of the correct tax or $5,000. Tax act free 2012 However, the amount of the understatement is reduced to the extent the understatement is due to: Substantial authority, or Adequate disclosure and a reasonable basis. Tax act free 2012   If an item on your return is attributable to a tax shelter, there is no reduction for an adequate disclosure. Tax act free 2012 However, there is a reduction for a position with substantial authority, but only if you reasonably believed that your tax treatment was more likely than not the proper treatment. Tax act free 2012 Substantial authority. Tax act free 2012   Whether there is or was substantial authority for the tax treatment of an item depends on the facts and circumstances. Tax act free 2012 Consideration will be given to court opinions, Treasury regulations, revenue rulings, revenue procedures, and notices and announcements issued by the IRS and published in the Internal Revenue Bulletin that involve the same or similar circumstances as yours. Tax act free 2012 Disclosure statement. Tax act free 2012   To adequately disclose the relevant facts about your tax treatment of an item, use Form 8275, Disclosure Statement. Tax act free 2012 You must also have a reasonable basis for treating the item the way you did. Tax act free 2012   In cases of substantial understatement only, items that meet the requirements of Revenue Procedure 2012-51, 2012-51 IRB 719 (or later update) are considered adequately disclosed on your return without filing Form 8275. Tax act free 2012   Use Form 8275-R, Regulation Disclosure Statement, to disclose items or positions contrary to regulations. Tax act free 2012 Transaction lacking economic substance. Tax act free 2012   For more information on economic substance, see section 7701(o). Tax act free 2012 Foreign financial asset. Tax act free 2012   For more information on undisclosed foreign financial assets, see section 6662(j) or the Instructions for Form 8938. Tax act free 2012 Reasonable cause. Tax act free 2012   You will not have to pay a penalty if you show a good reason (reasonable cause) for the way you treated an item. Tax act free 2012 You must also show that you acted in good faith. Tax act free 2012 This does not apply to a transaction that lacks economic substance. Tax act free 2012 Filing erroneous claim for refund or credit. Tax act free 2012   You may have to pay a penalty if you file an erroneous claim for refund or credit. Tax act free 2012 The penalty is equal to 20% of the disallowed amount of the claim, unless you can show a reasonable basis for the way you treated an item. Tax act free 2012 However, any disallowed amount due to a transaction that lacks economic substance will not be treated as having a reasonable basis. Tax act free 2012 The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged. Tax act free 2012 Frivolous tax submission. Tax act free 2012   You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. Tax act free 2012 A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect. Tax act free 2012 For more information on frivolous returns, frivolous submissions, and a list of positions that are identified as frivolous, see Notice 2010-33, 2010-17 IRB 609 available at www. Tax act free 2012 irs. Tax act free 2012 gov/irb/2010-17_irb/ar13. Tax act free 2012 html. Tax act free 2012   You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. Tax act free 2012 This includes altering or striking out the preprinted language above the space provided for your signature. Tax act free 2012   This penalty is added to any other penalty provided by law. Tax act free 2012 Fraud. Tax act free 2012   If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax. Tax act free 2012 Failure to supply taxpayer identification number. Tax act free 2012   If you do not include your social security number (SSN) or individual taxpayer identification number (ITIN) or the SSN or ITIN of another person where required on a return, statement, or other document, you will be subject to a penalty of $50 for each failure. Tax act free 2012 You will also be subject to a penalty of $50 if you do not give your SSN or ITIN to another person when it is required on a return, statement, or other document. Tax act free 2012   For example, if you have a bank account that earns interest, you must give your SSN or ITIN to the bank. Tax act free 2012 The number must be shown on the Form 1099-INT or other statement the bank sends you. Tax act free 2012 If you do not give the bank your SSN or ITIN, you will be subject to the $50 penalty. Tax act free 2012 (You also may be subject to “backup” withholding of income tax. Tax act free 2012 )   You will not have to pay the penalty if you are able to show that the failure was due to reasonable cause and not willful neglect. Tax act free 2012 Criminal Penalties You may be subject to criminal prosecution (brought to trial) for actions such as: Tax evasion, Willful failure to file a return, supply information, or pay any tax due, Fraud and false statements, or Preparing and filing a fraudulent return. Tax act free 2012 Prev  Up  Next   Home   More Online Publications
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The Tax Act Free 2012

Tax act free 2012 Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Tax act free 2012 S. Tax act free 2012 Taxpayer Identification NumbersUnexpected payment. Tax act free 2012 Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Tax act free 2012 Electronic reporting. Tax act free 2012 Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Tax act free 2012 S. Tax act free 2012 Real Property InterestForeign corporations. Tax act free 2012 Domestic corporations. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 real property holding corporations. Tax act free 2012 Partnerships. Tax act free 2012 Trusts and estates. Tax act free 2012 Domestically controlled QIE. Tax act free 2012 Late filing of certifications or notices. Tax act free 2012 Certifications. Tax act free 2012 Liability of agent or qualified substitute. Tax act free 2012 Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Tax act free 2012 Withholding of Tax In most cases, a foreign person is subject to U. Tax act free 2012 S. Tax act free 2012 tax on its U. Tax act free 2012 S. Tax act free 2012 source income. Tax act free 2012 Most types of U. Tax act free 2012 S. Tax act free 2012 source income received by a foreign person are subject to U. Tax act free 2012 S. Tax act free 2012 tax of 30%. Tax act free 2012 A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Tax act free 2012 The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Tax act free 2012 The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Tax act free 2012 In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Tax act free 2012 S. Tax act free 2012 source income. Tax act free 2012 Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Tax act free 2012 NRA withholding does not include withholding under section 1445 of the Code (see U. Tax act free 2012 S. Tax act free 2012 Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Tax act free 2012 A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Tax act free 2012 However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Tax act free 2012 S. Tax act free 2012 person is not required to withhold. Tax act free 2012 In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Tax act free 2012 Withholding Agent You are a withholding agent if you are a U. Tax act free 2012 S. Tax act free 2012 or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Tax act free 2012 A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Tax act free 2012 S. Tax act free 2012 branch of certain foreign banks and insurance companies. Tax act free 2012 You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Tax act free 2012 Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Tax act free 2012 In most cases, the U. Tax act free 2012 S. Tax act free 2012 person who pays an amount subject to NRA withholding is the person responsible for withholding. Tax act free 2012 However, other persons may be required to withhold. Tax act free 2012 For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Tax act free 2012 In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Tax act free 2012 Liability for tax. Tax act free 2012   As a withholding agent, you are personally liable for any tax required to be withheld. Tax act free 2012 This liability is independent of the tax liability of the foreign person to whom the payment is made. Tax act free 2012 If you fail to withhold and the foreign payee fails to satisfy its U. Tax act free 2012 S. Tax act free 2012 tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Tax act free 2012   The applicable tax will be collected only once. Tax act free 2012 If the foreign person satisfies its U. Tax act free 2012 S. Tax act free 2012 tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Tax act free 2012 Determination of amount to withhold. Tax act free 2012   You must withhold on the gross amount subject to NRA withholding. Tax act free 2012 You cannot reduce the gross amount by any deductions. Tax act free 2012 However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Tax act free 2012   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Tax act free 2012 In no case, however, should you withhold more than 30% of the total amount paid. Tax act free 2012 Or, you may make a reasonable estimate of the amount from U. Tax act free 2012 S. Tax act free 2012 sources and put a corresponding part of the amount due in escrow until the amount from U. Tax act free 2012 S. Tax act free 2012 sources can be determined, at which time withholding becomes due. Tax act free 2012 When to withhold. Tax act free 2012   Withholding is required at the time you make a payment of an amount subject to withholding. Tax act free 2012 A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Tax act free 2012 A payment is considered made to a person if it is paid for that person's benefit. Tax act free 2012 For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Tax act free 2012 A payment also is considered made to a person if it is made to that person's agent. Tax act free 2012   A U. Tax act free 2012 S. Tax act free 2012 partnership should withhold when any distributions that include amounts subject to withholding are made. Tax act free 2012 However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Tax act free 2012 S. Tax act free 2012 partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Tax act free 2012 If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Tax act free 2012 A U. Tax act free 2012 S. Tax act free 2012 trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Tax act free 2012 To the extent a U. Tax act free 2012 S. Tax act free 2012 trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Tax act free 2012 Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Tax act free 2012 (See Returns Required , later. Tax act free 2012 ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Tax act free 2012 Form 1099 reporting and backup withholding. Tax act free 2012    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Tax act free 2012 S. Tax act free 2012 person that is subject to Form 1099 reporting if any of the following apply. Tax act free 2012 The U. Tax act free 2012 S. Tax act free 2012 person has not provided its taxpayer identification number (TIN) in the manner required. Tax act free 2012 The IRS notifies you that the TIN furnished by the payee is incorrect. Tax act free 2012 There has been a notified payee underreporting. Tax act free 2012 There has been a payee certification failure. Tax act free 2012 In most cases, a TIN must be provided by a U. Tax act free 2012 S. Tax act free 2012 non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Tax act free 2012 A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Tax act free 2012 You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Tax act free 2012 S. Tax act free 2012 person subject to Form 1099 reporting. Tax act free 2012 See Identifying the Payee , later, for more information. Tax act free 2012 Also see Section S. Tax act free 2012 Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Tax act free 2012 Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Tax act free 2012 Wages paid to employees. Tax act free 2012   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Tax act free 2012 See Pay for Personal Services Performed , later. Tax act free 2012 Effectively connected income by partnerships. Tax act free 2012   A withholding agent that is a partnership (whether U. Tax act free 2012 S. Tax act free 2012 or foreign) is also responsible for withholding on its income effectively connected with a U. Tax act free 2012 S. Tax act free 2012 trade or business that is allocable to foreign partners. Tax act free 2012 See Partnership Withholding on Effectively Connected Income , later, for more information. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 real property interest. Tax act free 2012   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Tax act free 2012 S. Tax act free 2012 real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Tax act free 2012 S. Tax act free 2012 real property interest to a shareholder, partner, or beneficiary that is a foreign person. Tax act free 2012 See U. Tax act free 2012 S. Tax act free 2012 Real Property Interest , later. Tax act free 2012 Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Tax act free 2012 It does not apply to payments made to U. Tax act free 2012 S. Tax act free 2012 persons. Tax act free 2012 Usually, you determine the payee's status as a U. Tax act free 2012 S. Tax act free 2012 or foreign person based on the documentation that person provides. Tax act free 2012 See Documentation , later. Tax act free 2012 However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Tax act free 2012 Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Tax act free 2012 However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 agent of foreign person. Tax act free 2012   If you make a payment to a U. Tax act free 2012 S. Tax act free 2012 person and you have actual knowledge that the U. Tax act free 2012 S. Tax act free 2012 person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Tax act free 2012 However, if the U. Tax act free 2012 S. Tax act free 2012 person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Tax act free 2012   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Tax act free 2012 S. Tax act free 2012 person and not as a payment to a foreign person. Tax act free 2012 You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Tax act free 2012 Disregarded entities. Tax act free 2012   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Tax act free 2012 The payee of a payment made to a disregarded entity is the owner of the entity. Tax act free 2012   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Tax act free 2012   If the owner is a U. Tax act free 2012 S. Tax act free 2012 person, you do not apply NRA withholding. Tax act free 2012 However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Tax act free 2012 You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Tax act free 2012 Flow-Through Entities The payees of payments (other than income effectively connected with a U. Tax act free 2012 S. Tax act free 2012 trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Tax act free 2012 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Tax act free 2012 Income that is, or is deemed to be, effectively connected with the conduct of a U. Tax act free 2012 S. Tax act free 2012 trade or business of a flow-through entity is treated as paid to the entity. Tax act free 2012 All of the following are flow-through entities. Tax act free 2012 A foreign partnership (other than a withholding foreign partnership). Tax act free 2012 A foreign simple or foreign grantor trust (other than a withholding foreign trust). Tax act free 2012 A fiscally transparent entity receiving income for which treaty benefits are claimed. Tax act free 2012 See Fiscally transparent entity , later. Tax act free 2012 In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Tax act free 2012 You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Tax act free 2012 You must determine whether the owners or beneficiaries of a flow-through entity are U. Tax act free 2012 S. Tax act free 2012 or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Tax act free 2012 You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Tax act free 2012 If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Tax act free 2012 See Documentation and Presumption Rules , later. Tax act free 2012 Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Tax act free 2012 Foreign partnerships. Tax act free 2012    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Tax act free 2012 If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Tax act free 2012 However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Tax act free 2012 If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Tax act free 2012 Example 1. Tax act free 2012 A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Tax act free 2012 S. Tax act free 2012 citizen. Tax act free 2012 You make a payment of U. Tax act free 2012 S. Tax act free 2012 source interest to the partnership. Tax act free 2012 It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Tax act free 2012 S. Tax act free 2012 citizen. Tax act free 2012 The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Tax act free 2012 You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Tax act free 2012 Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Tax act free 2012 Report the payment to the U. Tax act free 2012 S. Tax act free 2012 citizen on Form 1099-INT. Tax act free 2012 Example 2. Tax act free 2012 A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Tax act free 2012 The second partnership has two partners, both nonresident alien individuals. Tax act free 2012 You make a payment of U. Tax act free 2012 S. Tax act free 2012 source interest to the first partnership. Tax act free 2012 It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Tax act free 2012 In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Tax act free 2012 The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Tax act free 2012 Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Tax act free 2012 Example 3. Tax act free 2012 You make a payment of U. Tax act free 2012 S. Tax act free 2012 source dividends to a withholding foreign partnership. Tax act free 2012 The partnership has two partners, both foreign corporations. Tax act free 2012 You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Tax act free 2012 You must treat the partnership as the payee of the dividends. Tax act free 2012 Foreign simple and grantor trust. Tax act free 2012   A trust is foreign unless it meets both of the following tests. Tax act free 2012 A court within the United States is able to exercise primary supervision over the administration of the trust. Tax act free 2012 One or more U. Tax act free 2012 S. Tax act free 2012 persons have the authority to control all substantial decisions of the trust. Tax act free 2012   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Tax act free 2012 A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Tax act free 2012   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Tax act free 2012 The payees of a payment made to a foreign grantor trust are the owners of the trust. Tax act free 2012 However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Tax act free 2012 If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Tax act free 2012 Example. Tax act free 2012 A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Tax act free 2012 S. Tax act free 2012 citizen. Tax act free 2012 You make a payment of interest to the foreign trust. Tax act free 2012 It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Tax act free 2012 S. Tax act free 2012 citizen. Tax act free 2012 The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Tax act free 2012 You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Tax act free 2012 Report the payment to the nonresident aliens on Forms 1042-S. Tax act free 2012 Report the payment to the U. Tax act free 2012 S. Tax act free 2012 citizen on Form 1099-INT. Tax act free 2012 Fiscally transparent entity. Tax act free 2012   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Tax act free 2012 The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Tax act free 2012 ). Tax act free 2012 The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Tax act free 2012 An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Tax act free 2012 Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Tax act free 2012   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Tax act free 2012 Example. Tax act free 2012 Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Tax act free 2012 A has two interest holders, B and C. Tax act free 2012 B is a corporation organized under the laws of country Y. Tax act free 2012 C is a corporation organized under the laws of country Z. Tax act free 2012 Both countries Y and Z have an income tax treaty in force with the United States. Tax act free 2012 A receives royalty income from U. Tax act free 2012 S. Tax act free 2012 sources that is not effectively connected with the conduct of a trade or business in the United States. Tax act free 2012 For U. Tax act free 2012 S. Tax act free 2012 income tax purposes, A is treated as a partnership. Tax act free 2012 Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Tax act free 2012 The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Tax act free 2012 Accordingly, A is fiscally transparent in its jurisdiction, country X. Tax act free 2012 B and C are not fiscally transparent under the laws of their respective countries of incorporation. Tax act free 2012 Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Tax act free 2012 Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Tax act free 2012 S. Tax act free 2012 source royalty income for purposes of the U. Tax act free 2012 S. Tax act free 2012 -Y income tax treaty. Tax act free 2012 Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Tax act free 2012 Therefore, A is not treated as fiscally transparent under the laws of country Z. Tax act free 2012 Accordingly, C is not treated as deriving its share of the U. Tax act free 2012 S. Tax act free 2012 source royalty income for purposes of the U. Tax act free 2012 S. Tax act free 2012 -Z income tax treaty. Tax act free 2012 Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Tax act free 2012 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Tax act free 2012 You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Tax act free 2012 An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Tax act free 2012 A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Tax act free 2012 In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Tax act free 2012 You must determine whether the customers or account holders of a foreign intermediary are U. Tax act free 2012 S. Tax act free 2012 or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Tax act free 2012 You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Tax act free 2012 If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Tax act free 2012 See Documentation and Presumption Rules , later. Tax act free 2012 Nonqualified intermediary. Tax act free 2012   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Tax act free 2012 The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Tax act free 2012 Example. Tax act free 2012 You make a payment of interest to a foreign bank that is a nonqualified intermediary. Tax act free 2012 The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Tax act free 2012 S. Tax act free 2012 person for whom the bank is collecting the payments. Tax act free 2012 The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Tax act free 2012 The account holders are the payees of the interest payment. Tax act free 2012 You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Tax act free 2012 S. Tax act free 2012 person on Form 1099-INT. Tax act free 2012 Qualified intermediary. Tax act free 2012   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Tax act free 2012 S. Tax act free 2012 intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Tax act free 2012 You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Tax act free 2012 In this situation, the QI is required to withhold the tax. Tax act free 2012 You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Tax act free 2012   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Tax act free 2012 If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 Branches of financial institutions. Tax act free 2012   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Tax act free 2012 The countries with approved KYC rules are listed on IRS. Tax act free 2012 gov. Tax act free 2012 QI withholding agreement. Tax act free 2012   Foreign financial institutions and foreign branches of U. Tax act free 2012 S. Tax act free 2012 financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Tax act free 2012   A QI is entitled to certain simplified withholding and reporting rules. Tax act free 2012 In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Tax act free 2012   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Tax act free 2012 These forms, and the procedures required to obtain a QI withholding agreement are available at www. Tax act free 2012 irs. Tax act free 2012 gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Tax act free 2012 Documentation. Tax act free 2012   A QI is not required to forward documentation obtained from foreign account holders to the U. Tax act free 2012 S. Tax act free 2012 withholding agent from whom the QI receives a payment of U. Tax act free 2012 S. Tax act free 2012 source income. Tax act free 2012 The QI maintains such documentation at its location and provides the U. Tax act free 2012 S. Tax act free 2012 withholding agent with withholding rate pools. Tax act free 2012 A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Tax act free 2012   A QI is required to provide the U. Tax act free 2012 S. Tax act free 2012 withholding agent with information regarding U. Tax act free 2012 S. Tax act free 2012 persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Tax act free 2012   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Tax act free 2012 This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Tax act free 2012 Form 1042-S reporting. Tax act free 2012   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Tax act free 2012 Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Tax act free 2012 Collective refund procedures. Tax act free 2012   A QI may seek a refund on behalf of its direct account holders. Tax act free 2012 The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 branches of foreign banks and foreign insurance companies. Tax act free 2012   Special rules apply to a U. Tax act free 2012 S. Tax act free 2012 branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Tax act free 2012 If you agree to treat the branch as a U. Tax act free 2012 S. Tax act free 2012 person, you may treat the branch as a U. Tax act free 2012 S. Tax act free 2012 payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Tax act free 2012 S. Tax act free 2012 branch on which the agreement is evidenced. Tax act free 2012 If you treat the branch as a U. Tax act free 2012 S. Tax act free 2012 payee, you are not required to withhold. Tax act free 2012 Even though you agree to treat the branch as a U. Tax act free 2012 S. Tax act free 2012 person, you must report the payment on Form 1042-S. Tax act free 2012   A financial institution organized in a U. Tax act free 2012 S. Tax act free 2012 possession is treated as a U. Tax act free 2012 S. Tax act free 2012 branch. Tax act free 2012 The special rules discussed in this section apply to a possessions financial institution. Tax act free 2012   If you are paying a U. Tax act free 2012 S. Tax act free 2012 branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Tax act free 2012 S. Tax act free 2012 person for amounts subject to NRA withholding. Tax act free 2012 Consequently, amounts not subject to NRA withholding that are paid to a U. Tax act free 2012 S. Tax act free 2012 branch are not subject to Form 1099 reporting or backup withholding. Tax act free 2012   Alternatively, a U. Tax act free 2012 S. Tax act free 2012 branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Tax act free 2012 In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Tax act free 2012 See Nonqualified Intermediaries under  Documentation, later. Tax act free 2012   If the U. Tax act free 2012 S. Tax act free 2012 branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Tax act free 2012 Withholding foreign partnership and foreign trust. Tax act free 2012   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Tax act free 2012 A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Tax act free 2012   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Tax act free 2012 A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Tax act free 2012 You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Tax act free 2012 WP and WT withholding agreements. Tax act free 2012   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Tax act free 2012 Also see the following items. Tax act free 2012 Revenue Procedure 2004-21. Tax act free 2012 Revenue Procedure 2005-77. Tax act free 2012 Employer identification number (EIN). Tax act free 2012   A completed Form SS-4 must be submitted with the application for being a WP or WT. Tax act free 2012 The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Tax act free 2012 Documentation. Tax act free 2012   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Tax act free 2012 The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Tax act free 2012 The Form W-8IMY must contain the WP-EIN or WT-EIN. Tax act free 2012 Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Tax act free 2012 A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 It also includes a foreign branch of a U. Tax act free 2012 S. Tax act free 2012 financial institution if the foreign branch is a qualified intermediary. Tax act free 2012 In most cases, the U. Tax act free 2012 S. Tax act free 2012 branch of a foreign corporation or partnership is treated as a foreign person. Tax act free 2012 Nonresident alien. Tax act free 2012   A nonresident alien is an individual who is not a U. Tax act free 2012 S. Tax act free 2012 citizen or a resident alien. Tax act free 2012 A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Tax act free 2012 Married to U. Tax act free 2012 S. Tax act free 2012 citizen or resident alien. Tax act free 2012   Nonresident alien individuals married to U. Tax act free 2012 S. Tax act free 2012 citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Tax act free 2012 However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Tax act free 2012 Wages paid to these individuals are subject to graduated withholding. Tax act free 2012 See Wages Paid to Employees—Graduated Withholding . Tax act free 2012 Resident alien. Tax act free 2012   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Tax act free 2012 Green card test. Tax act free 2012 An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Tax act free 2012 This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Tax act free 2012 Substantial presence test. Tax act free 2012 An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Tax act free 2012 Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Tax act free 2012   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Tax act free 2012 This exception is for a limited period of time. Tax act free 2012   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Tax act free 2012 Note. Tax act free 2012   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Tax act free 2012 For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Tax act free 2012 Resident of a U. Tax act free 2012 S. Tax act free 2012 possession. Tax act free 2012   A bona fide resident of Puerto Rico, the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Tax act free 2012 S. Tax act free 2012 citizen or a U. Tax act free 2012 S. Tax act free 2012 national is treated as a nonresident alien for the withholding rules explained here. Tax act free 2012 A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Tax act free 2012   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Tax act free 2012 S. Tax act free 2012 Possessions. Tax act free 2012 Foreign corporations. Tax act free 2012   A foreign corporation is one that does not fit the definition of a domestic corporation. Tax act free 2012 A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Tax act free 2012 Guam or Northern Mariana Islands corporations. Tax act free 2012   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Tax act free 2012 Note. Tax act free 2012   The provisions discussed below under U. Tax act free 2012 S. Tax act free 2012 Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 Virgin Islands and American Samoa corporations. Tax act free 2012   A corporation created or organized in, or under the laws of, the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Tax act free 2012 S. Tax act free 2012 Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Tax act free 2012 Foreign private foundations. Tax act free 2012   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Tax act free 2012 Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Tax act free 2012 Other foreign organizations, associations, and charitable institutions. Tax act free 2012   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Tax act free 2012 In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Tax act free 2012   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Tax act free 2012   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 branches of foreign persons. Tax act free 2012   In most cases, a payment to a U. Tax act free 2012 S. Tax act free 2012 branch of a foreign person is a payment made to the foreign person. Tax act free 2012 However, you may treat payments to U. Tax act free 2012 S. Tax act free 2012 branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Tax act free 2012 S. Tax act free 2012 regulatory supervision as payments made to a U. Tax act free 2012 S. Tax act free 2012 person, if you and the U. Tax act free 2012 S. Tax act free 2012 branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Tax act free 2012 For this purpose, a financial institution organized under the laws of a U. Tax act free 2012 S. Tax act free 2012 possession is treated as a U. Tax act free 2012 S. Tax act free 2012 branch. Tax act free 2012 Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Tax act free 2012 The payee is a U. Tax act free 2012 S. Tax act free 2012 person. Tax act free 2012 The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Tax act free 2012 In most cases, you must get the documentation before you make the payment. Tax act free 2012 The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Tax act free 2012 See Standards of Knowledge , later. Tax act free 2012 If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Tax act free 2012 For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Tax act free 2012 The specific types of documentation are discussed in this section. Tax act free 2012 However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Tax act free 2012 As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Tax act free 2012 Section 1446 withholding. Tax act free 2012   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Tax act free 2012 In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Tax act free 2012 This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Tax act free 2012 Joint owners. Tax act free 2012    If you make a payment to joint owners, you need to get documentation from each owner. Tax act free 2012 Form W-9. Tax act free 2012   In most cases, you can treat the payee as a U. Tax act free 2012 S. Tax act free 2012 person if the payee gives you a Form W-9. Tax act free 2012 The Form W-9 can be used only by a U. Tax act free 2012 S. Tax act free 2012 person and must contain the payee's taxpayer identification number (TIN). Tax act free 2012 If there is more than one owner, you may treat the total amount as paid to a U. Tax act free 2012 S. Tax act free 2012 person if any one of the owners gives you a Form W-9. Tax act free 2012 See U. Tax act free 2012 S. Tax act free 2012 Taxpayer Identification Numbers , later. Tax act free 2012 U. Tax act free 2012 S. Tax act free 2012 persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Tax act free 2012 Form W-8. Tax act free 2012   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Tax act free 2012 Until further notice, you can rely upon Forms W-8 that contain a P. Tax act free 2012 O. Tax act free 2012 box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Tax act free 2012 S. Tax act free 2012 person and that a street address is available. Tax act free 2012 You may rely on Forms W-8 for which there is a U. Tax act free 2012 S. Tax act free 2012 mailing address provided you received the form prior to December 31, 2001. Tax act free 2012   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Tax act free 2012 You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Tax act free 2012 S. Tax act free 2012 possession. Tax act free 2012 Other documentation. Tax act free 2012   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Tax act free 2012 The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Tax act free 2012 These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Tax act free 2012 Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Tax act free 2012 Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Tax act free 2012   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Tax act free 2012   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Tax act free 2012 For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Tax act free 2012 Claiming treaty benefits. Tax act free 2012   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Tax act free 2012 S. Tax act free 2012 TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Tax act free 2012   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Tax act free 2012   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Tax act free 2012 See Fiscally transparent entity discussed earlier under Flow-Through Entities. Tax act free 2012   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Tax act free 2012 For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Tax act free 2012   The exemptions from, or reduced rates of, U. Tax act free 2012 S. Tax act free 2012 tax vary under each treaty. Tax act free 2012 You must check the provisions of the tax treaty that apply. Tax act free 2012 Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Tax act free 2012   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Tax act free 2012 You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Tax act free 2012 Exceptions to TIN requirement. Tax act free 2012   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Tax act free 2012 Income from marketable securities (discussed next). Tax act free 2012 Unexpected payments to an individual (discussed under U. Tax act free 2012 S. Tax act free 2012 Taxpayer Identification Numbers ). Tax act free 2012 Marketable securities. Tax act free 2012   A Form W-8BEN provided to claim treaty benefits does not need a U. Tax act free 2012 S. Tax act free 2012 TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Tax act free 2012 For this purpose, income from a marketable security consists of the following items. Tax act free 2012 Dividends and interest from stocks and debt obligations that are actively traded. Tax act free 2012 Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Tax act free 2012 Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Tax act free 2012 Income related to loans of any of the above securities. Tax act free 2012 Offshore accounts. Tax act free 2012   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Tax act free 2012   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Tax act free 2012 However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Tax act free 2012 An offshore account is an account maintained at an office or branch of a U. Tax act free 2012 S. Tax act free 2012 or foreign bank or other financial institution at any location outside the United States. Tax act free 2012   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Tax act free 2012 This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Tax act free 2012 In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Tax act free 2012 Documentary evidence. Tax act free 2012   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Tax act free 2012 To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Tax act free 2012 Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Tax act free 2012 Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Tax act free 2012 In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Tax act free 2012 Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Tax act free 2012   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Tax act free 2012 (See Effectively Connected Income , later. Tax act free 2012 )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Tax act free 2012   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Tax act free 2012 S. Tax act free 2012 trade or business is subject to withholding under section 1446. Tax act free 2012 If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Tax act free 2012    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Tax act free 2012 Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Tax act free 2012   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Tax act free 2012 S. Tax act free 2012 possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Tax act free 2012   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Tax act free 2012   See Foreign Governments and Certain Other Foreign Organizations , later. Tax act free 2012 Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Tax act free 2012 The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Tax act free 2012 The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Tax act free 2012 Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Tax act free 2012 S. Tax act free 2012 Branches for United States Tax Withholding. Tax act free 2012   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Tax act free 2012 S. Tax act free 2012 branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Tax act free 2012 S. Tax act free 2012 branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Tax act free 2012 S. Tax act free 2012 person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Tax act free 2012 For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Tax act free 2012 1446-5. Tax act free 2012 Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Tax act free 2012 A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Tax act free 2012 The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Tax act free 2012 The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Tax act free 2012 Responsibilities. Tax act free 2012   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Tax act free 2012 However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Tax act free 2012 Instead, it provides you with a withholding statement that contains withholding rate pool information. Tax act free 2012 A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Tax act free 2012 A qualified intermediary is required to provide you with information regarding U. Tax act free 2012 S. Tax act free 2012 persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Tax act free 2012 S. Tax act free 2012 person unless it has assumed Form 1099 reporting and backup withholding responsibility. Tax act free 2012 For the alternative procedure for providing rate pool information for U. Tax act free 2012 S. Tax act free 2012 non-exempt persons, see the Form W-8IMY instructions. Tax act free 2012   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Tax act free 2012   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Tax act free 2012 Primary responsibility not assumed. Tax act free 2012   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Tax act free 2012 Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Tax act free 2012 S. Tax act free 2012 person subject to Form 1099 reporting and/or backup withholding. Tax act free 2012 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Tax act free 2012 Primary NRA withholding responsibility assumed. Tax act free 2012   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Tax act free 2012 S. Tax act free 2012 person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Tax act free 2012 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Tax act free 2012 Primary NRA and Form 1099 responsibility assumed. Tax act free 2012   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Tax act free 2012 It is not necessary to associate the payment with withholding rate pools. Tax act free 2012 Example. Tax act free 2012 You make a payment of dividends to a QI. Tax act free 2012 It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Tax act free 2012 S. Tax act free 2012 individual who provides it with a Form W-9. Tax act free 2012 Each customer is entitled to 20% of the dividend payment. Tax act free 2012 The QI does not assume any primary withholding responsibility. Tax act free 2012 The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Tax act free 2012 S. Tax act free 2012 individual. Tax act free 2012 You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Tax act free 2012 The part of the payment allocable to the U. Tax act free 2012 S. Tax act free 2012 individual (20%) is reportable on Form 1099-DIV. Tax act free 2012 Smaller partnerships and trusts. Tax act free 2012   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Tax act free 2012 It is a foreign partnership or foreign simple or grantor trust. Tax act free 2012 It is a direct account holder of the QI. Tax act free 2012 It does not have any partner, beneficiary, or owner that is a U. Tax act free 2012 S. Tax act free 2012 person or a pass- through partner, beneficiary, or owner. Tax act free 2012   For information on these rules, see section 4A. Tax act free 2012 01 of the QI agreement. Tax act free 2012 This is found in Appendix 3 of Revenue Procedure 2003-64. Tax act free 2012 Also see Revenue Procedure 2004-21. Tax act free 2012 Related partnerships and trusts. Tax act free 2012    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Tax act free 2012 It is a foreign partnership or foreign simple or grantor trust. Tax act free 2012 It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Tax act free 2012 For information on these rules, see section 4A. Tax act free 2012 02 of the QI agreement. Tax act free 2012 This is found in Appendix 3 of Revenue Procedure 2003-64. Tax act free 2012 Also see Revenue Procedure 2005-77. Tax act free 2012 Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Tax act free 2012 S. Tax act free 2012 branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Tax act free 2012 S. Tax act free 2012 branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Tax act free 2012 The NQI, flow-through entity, or U. Tax act free 2012 S. Tax act free 2012 branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Tax act free 2012 A withholding statement must be updated to keep the information accurate prior to each payment. Tax act free 2012 Withholding statement. Tax act free 2012   In most cases, a withholding statement must contain the following information. Tax act free 2012 The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Tax act free 2012 The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Tax act free 2012 The status of the person for whom the documentation has been provided, such as whether the person is a U. Tax act free 2012 S. Tax act free 2012 exempt recipient (U. Tax act free 2012 S. Tax act free 2012 person exempt from Form 1099 reporting), U. Tax act free 2012 S. Tax act free 2012 non-exempt recipient (U. Tax act free 2012 S. Tax act free 2012 person subject to Form 1099 reporting), or a foreign person. Tax act free 2012 For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Tax act free 2012 S. Tax act free 2012 branch. Tax act free 2012 The type of recipient the person is, based on the recipient codes used on Form 1042-S. Tax act free 2012 Information allocating each payment, by income type, to each payee (including U. Tax act free 2012 S. Tax act free 2012 exempt and U. Tax act free 2012 S. Tax act free 2012 non-exempt recipients) for whom documentation has been provided. Tax act free 2012 The rate of withholding that applies to each foreign person to whom a payment is allocated. Tax act free 2012 A foreign payee's country of residence. Tax act free 2012 If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Tax act free 2012 ). Tax act free 2012 In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Tax act free 2012 The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Tax act free 2012 S. Tax act free 2012 branch from which the payee will directly receive a payment. Tax act free 2012 Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Tax act free 2012 Alternative procedure. Tax act free 2012   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Tax act free 2012 S. Tax act free 2012 exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Tax act free 2012 To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Tax act free 2012 You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Tax act free 2012    This alternative procedure cannot be used for payments to U. Tax act free 2012 S. Tax act free 2012 non-exempt recipients. Tax act free 2012 Therefore, an NQI must always provide you with allocation information for all U. Tax act free 2012 S. Tax act free 2012 non-exempt recipients prior to a payment being made. Tax act free 2012 Pooled withholding information. Tax act free 2012   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Tax act free 2012 A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Tax act free 2012 For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Tax act free 2012 The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Tax act free 2012 Failure to provide allocation information. Tax act free 2012   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Tax act free 2012 You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Tax act free 2012 An NQI is deemed to have f