IRS recently announced that the Individual Taxpayer Identification Numbers (ITIN) will need to be renewed every 3 years. The new release states that the ITIN is temporary and cannot be permanently used. In order to renew the ITIN, non-residents will need to file a new application on Form W-7 after 3 years, otherwise their tax returns will be rejected.
The IRS announced changes which require certain taxpayers to renew their ITINs. The renewal of ITINs requirement does not apply to ITIN holders who do not need to file their tax returns in 2017.
The following taxpayers require renewal of ITINs:
- Taxpayers with ITINs not used on federal tax returns for at least once in last 3 years i.e. 2013, 2014 and 2015. Such unused ITINs will require renewal and will not be valid for filing tax returns in 2017.
- Taxpayers who were issued ITINs prior to 2013. Their ITINs will begin expiring this year and the taxpayer must renew them to prevent rejection of their tax returns.
IRS further states that Taxpayers will need to renew their ITINs on a rolling basis which means that the first ITINs that will expire are the ones with middle digits of 78 or 79 and the ones that are not used for one of the 3 prior years. These ITINs will need to be renewed with the period beginning October 1, 2016.
The taxpayer who has an expired ITIN and who does not renew it before filing the tax returns in 2017, may have a delay in refund and may be ineligible for certain tax credit like American Opportunity tax credit and child tax credit till the time new ITIN is not received.
Taxpayers should check their ITINs as soon as possible. Taxpayers with an ITIN with middle digits of 78 or 79 can apply for ITINs for the entire family at the same time. Family members include taxpayer, spouse and dependents claimed on their tax returns.
Other important changes for dependents of taxpayers:
Following are the new requirements for dependents whose passport do not have the date of entry in the U.S.:
- The IRS will not accept passport as stand-alone identity document if the passport does not have the date of entry in the US for dependents from countries other than Canada and Mexico or dependents of military members overseas.
- All such applicants who do not have a date of entry in the US on their passports will now be required to submit medical records for dependents under the age of 6 or U.S. school records for dependent under the age of 18 along with the passport.
All dependents aged 18 years or above can submit the rental or bank statement or utility bill having full name of the applicant and US address along with the passport.
CPA Global Tax & Accounting is an IRS approved Certifying Acceptance Agent. Generally, taxpayers are required to send their original passports and/ or other original documents, however, we can certify these documents, ensure that the Form W-7 is correctly prepared and submit them to IRS.
IRS recently released the draft Form 8621 to reflect changes made by FATCA effective March 18, 2010.
The new Part I of the Form suggests that the IRS generally intends to require annual filing of Form 8621—
- Without regard to whether an election under the PFIC rules is being made in that year, or whether the PFIC rules would alter otherwise generally applicable U.S. income tax rules for the year under section 1291, and
- Without regard to whether an income inclusion would be required under section 1293 or section 1296 for that tax year.
The information in this new Part I would require the taxpayers to provide IRS with information also generally required on new Form 8938 (Statement of Specified Foreign Investment Assets), and would enable the IRS to waive reporting on Form 8938 of foreign assets reported on Form 8621 without sacrificing the ability of the IRS to obtain desired information.
The IRS did not release draft instructions. Guidance is still awaited on issues such as whether it will retain current exceptions from filing of Form 8621 by tax-exempt U.S. entities that would not be subject to U.S. taxation under subchapter F on actual dividends from a PFIC.
To remind our readers, generally any investment by a US person in a foreign mutual fund is considered a PFIC and subject to be reported on Form 8621.
IRS yesterday released a draft version of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, to accommodate the FATCA provisions of the Code’s Chapter 4. Instructions to the draft, which would expand the form from two to eight pages, haven’t been released yet.
Generally effective for payments made after Dec. 31, 2012, the HIRE Act established rules for withholdable payments to foreign financial institutions (FFIs) and for withholdable payments to other foreign entities by adding new Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474). The rules provide for withholding taxes to enforce new reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S.-owned foreign entities.
Under Code Sec. 1471(a), a withholding agent must withhold 30% of any withholdable payment to an FFI that does not meet the requirements of Code Sec. 1471(b). A withholdable payment is, subject to certain exceptions:
- Any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income (FDAP income), if such payment is from sources within the US; and
- Any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the US (Code Sec. 1473(1))
An FFI satisfies Code Sec. 1471(b), if it either enters into an agreement (an FFI agreement) with IRS to perform certain obligations or meets requirements prescribed by IRS to be deemed to comply with Code Sec. 1471(b).
Last week IRS updated the FAQs on its website regarding reporting on Form 8938 and added few more questions. Few noteworthy clarifications are:
- Tangible assets held for investment (e.g., art, antiques, jewelry, and cars) do not have to be reported.
- Safe deposit box is not a financial account.
- The omission of Form 8938 with the original return requires an amended return to be filed with the form attached.
- Filing of Form 8938 does not remove the requirement to file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), if otherwise required.
- Directly held precious metals, such as gold, are not specified foreign financial assets. Note, however, that gold certificates issued by a foreign person may be a specified foreign financial asset that you would have to report on Form 8938, if the total value of all your specified foreign financial assets is greater than the applicable reporting threshold.
This is an important development.
Here is the link: http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7180&Mode=0
Due to the recent fall of Rupee against the US dollar, repatriation from NRE accounts may not be attractive; it is a welcome change nevertheless.
Foreign Account Tax Compliance Act (FATCA) come into force from January 1, 2013 when financial institutions worldwide must report US owners’ names to the IRS. Australia’s Financial Services Council (FSC) has expressed concerns that the Australian financial services industry will be unable to comply with the proposed regulations. The FSC has conveyed this to US Treasury seeking relief. It appears US Treasury is open and receptive to these concerns.
The FATCA provisions will require Australian foreign financial institutions, including superannuation funds, to collect detailed information on their members in order to determine whether an individual member’s financial and residency arrangements make them a US taxpayer. If a member is a US taxpayer, the FATCA regime requires the fund to report this information to the IRS. However, if the account holder does not provide the necessary information the fund will be required to withhold a 30% tax on US – connected payments for that member.
Nonresident alien (NRA) athletes and entertainers performing independent personal services or participating in the U.S. and embassy and consulate employees in the U.S. can expect more enforcement and litigation, an IRS official said May 12.
Speaking at the American Bar Association Tax Section meeting in Washington, Lindsey D. Stellwagen, Special Counsel International, Office of Chief Counsel said that although there had been a lot of publicity on IRS measures to enforce compliance on U.S. persons with offshore wealth, her agency is also stepping up enforcement of NRAs and resident aliens (e.g. green card holders) that owe U.S. tax. She discussed the IRS programs pertaining to athletes and entertainers and the embassy project.
Foreign athletes and entertainers may pose a challenge to IRS enforcement because they come into the U.S. for a brief period of time, earn a lot of money, then leave. Such persons may be able to evade paying tax on their U.S.-source income and enforcement may be futile if they money earned has exited the U.S. without the imposition of withholding at source.
Nonresident alien entertainers or athletes performing independent personal services or participating in athletic events in the U.S. are generally subject to a 30 percent withholding on gross income. Stellwagen explained that under the central withholding agreement (CWA) program, such persons may be subject to reduced withholding provided that certain requirements are satisfied. The agreement is entered into by the NRA athlete or entertainer, a withholding agent and the IRS and is valid for a specific tour or series of events. Withholding is based upon the budget provided and estimated net profits.
CPA Global Tax & Accounting PLLC can assist athletes and entertainers with the CWA program and work with the IRS to minimize the exposures.