Welcome
to the Wiesenberg & Co. Certified Public Accountants foreign
property owner tax update.
How
does the Internal Revenue Service track foreign investors' financial
information? How do recent changes in the law affect this process?
The
IRS tracks non-residents in almost the same way it tracks US citizens.
Citizens are issued a nine-digit number called a Social Security
number. This number must be utilized by the US citizen for all
of his or her tax returns and for many other financial purposes.
This number is used throughout the citizen's life to track compliance
with the persons tax obligations. Beginning in 1996, the IRS instituted
a complex tracking system for individuals with US tax obligations
who do not have Social Security numbers. These numbers called
Individual Taxpayer Identification Numbers (ITINs) are also nine
digits long and work in much the same way that Social Security
numbers do.
This
ITIN number gives the IRS an efficient way to track the non-resident's
tax status. The tracking number also allows the IRS to automatically
apply the specific laws relating to non-citizens. Obtaining and
using an ITIN number is mandatory for any non-resident who needs
to file a US tax return. When a non-resident sells a property
the IRS can access information regarding the cost and basis of
the property based on past tax returns with the same ITIN number
(if prior returns were not filed this would also be immediately
picked up - and the 10% withholding would not be released without
filing the requisite tax returns). The ITIN is also used to check
which credits and deductions apply.
Prior
to December 17, 2003, one could obtain an ITIN number simply by
submitting the appropriate request form. Partly in response to
security concerns in a post 911 atmosphere, legislation was passed
at the end of 2003 making this process a little more complicated.
Currently to obtain the ITIN, the non-resident needs to submit
form W-7 with the completed tax return. Specific items of identification
are also required to substantiate information provided on the
W-7. Officially original documents need to be sent, but notarized
copies are also excepted.
Reminder:
If someone has missed the June 15 deadline it is still beneficial
to file as soon as possible
Tax
tip of the day
If
a Villa is used as a non-citizen's main home, an exclusion of
up to $500,000 of gain on a sale can apply.
Please
contact us with any comments or questions
you may have.
(This
newsletter is designed to be of general interest. The specific
techniques and information discussed may not apply to you. Before
acting on any matter contained herein, consult with your professional
advisor.)
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