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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1233
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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I want to discus Publication 515 IRS. I am interested about

Resolved Question:

I want to discus Publication 515 IRS. I am interested about Tax for NRA (person), if they get Real Property Income (rent). If NRA has a W-8 BEN, should a real state company reduce withholding TAX from 30 % for less ?
Submitted: 11 months ago.
Category: Tax
Expert:  Arthur Rubin replied 11 months ago.

Arthur Rubin :

Thank you for using Just Answer.

Arthur Rubin :

What of what country are "you" (the taxpayer in question) a resident?

Customer:

Russia

Arthur Rubin :

Give me a moment to check the relevant IRS publications.

Customer:

some specials: Russian person doesn't have ITIN, but sign W8-BEN. Real State comp. withhold 30%, but not deposit to IRS yet. NRA asked comp. to pay this amount.

Arthur Rubin :

It seems not to be publication 515 or 901; still looking.

Customer:

Publication 515 I have it

Arthur Rubin :

What does it say the rate on withholding for "income from real estate" for Russia. The direction of pages in the document makes it very difficult for me to find the relevant table entry.

Arthur Rubin :

I don't see anything in the actual treaty or implementation protocols which affect the withholding rate on real estate, but I haven't finished searching Publication 515 or 901

Customer:

I think you easier oriented. As I understand all NRA for rent purpose - 30% , but there are some treaty for many countries include Russia, but I don't know exactly and find only for Royalties.

Arthur Rubin :

Pub 515 only has tables for interest, dividend, pensions, royalty, and personal service income, as far as I can tell, with some notes on other types of income, but income from real estate is not mentioned, except in that dividends from REITs (Real Estate Investment Trusts) are not always considered "dividends". There is also a section on disposition of "real property interests". "Rent" is not discussed in publication 515 or in the treaty.

Customer:

But if income treat as business and sign W8 -ECI , no TAX? p.21 pub 515

Arthur Rubin :

If treated as income "effectively connected with a US business", then it is treated as "income from personal services" (if you don't have a corporate shell), which also doesn't have a specific exemption from withholding.

Customer:

please look at some specials: Russian person doesn't have ITIN, but sign W8-BEN. Real State comp. withhold 30%, but not deposit to IRS yet. NRA think it's wrong and asked comp. to pay to him 30% amount.

Customer:

 


Publication 515 (2013) p 15 Withholding exemption.


In most cases, you do not need to withhold tax on income if you receive a Form W8ECI on which a foreign payee represents that:


 


The foreign payee is the beneficial owner of the income,


 


 


 


 


 


 


The income is effectively connected with the conduct of a trade or business in the United States, and


The income is includible in the payee's gross income.

Arthur Rubin :

Sorry, my previous statement is incorrect.
I'm afraid I've never come across that problem. You need to submit a W-8ECI, rather than a W-8BEN, and whether the IRS accepts it seems to be at their discretion.

Whether rental activities constitute a "trade or business" seems to depend on which clause of the tax code you use, and which IRS agent you get processing the claim. However, as it's mentioned on page 21 of publication 515, there must be something to it.

Arthur Rubin :

Form W-8ECI doesn't have an ITIN requirement; however, you'll need to get an ITIN to file the 1040NR reporting the rental income.

Customer:

ok I agree now. But our customer was a person for Tax purpose and failed ITIN

Customer:

Has Real State comp deposit this tax without ITIN ?

Customer:

When should send 1042S - end of year (March 15)?

Arthur Rubin :

As I said, I've never run across a W-8ECI for an entity other than a trust. Please bear with me. You do need to have an ITIN to place on the W-8ECI. You apply for an ITIN on form W-7. Let me research further.

Arthur Rubin :

Withholding can be deposited (with form 1042S) without an ITIN. You need to identify or attach the 1042-S in your application for an ITIN, in order to associate your ITIN to the withholding.

Arthur Rubin :

It appears the IRS hasn't set up proper procedures to do this. It appears that the steps required are as follows:
1. Get a signed letter from the withholding agent that states that "an ITIN is required to make distributions to you during the current tax year that are subject to IRS information reporting or Federal tax withholding."
2. Apply for the ITIN, using form W-7, checking box b and h, noting exception 1(d) in the memo line for box h.

Arthur Rubin :

3. After you get the ITIN, give the withholding agent form W-8ECI with that ITIN.

Arthur Rubin :

As for the 1042S, if you don't get this done... you can attach one of your copies of the 1042S to your 1040NR to note the withholding taken; even there isn't an ID on the 1042-S. In that case, you only use box b on the W-7, and attach it to your 1040NR. That's the "clean" way to get an ITIN.

Customer:

In my case - I 'm represent a Real State company. And we have ex-customer NRA with W- 8BEN and no ITIN. We withhold 30% and not deposit yet.

Arthur Rubin :

I'm sorry I made a mistake in your identity. The situation is still the same; you need to provide the NRA with a letter as described in form W-7 instructions exceptions table item 1(d). He can attach that to his W-7, checking box b and h as I indicated above (if he doesn't already have an ITIN). When he gets an ITIN, he can fill out form W-8ECI, and give it to you; you would then no longer have to withhold the 30%.

Customer:

As I understand we have to deposit 30% (through EFTPS) and 1042 S send only March 15.

Customer:

You give a good advice. But it's for now. But he got income from January to May and went to another Real State company. So it doesn't work for us.

Arthur Rubin :

That is correct, if no exception is established. If there's no ITIN (is there one on the W-8BEN?), then you don't need to supply an ITIN. He can recover any excess withholding by attaching copy C or D of the 1042-S to his 1040NR. With the NRA's permission, you can fail to distribute any money until such time as the paperwork is in order.... (OK, let me consider what you just wrote.)

Arthur Rubin :

You say he got income from you during January-May, and went to another real estate company?

Customer:

Yes

Arthur Rubin :

In that case, you deposit the money, file the 1042-S with the IRS and with the NRA, and he can attempt to file a 1040NR, with the 1042-S attached, to get whatever refund he is entitled to. If he doesn't have an ITIN yet, he can attach the W-7 to the 1040NR.

Customer:

Ok I agree.

Customer:

We have other customer who is Canadian. Our accountant did for them 1099 and they did 1040NR with W-7. What do you think is it wrong 1099 or for Canada its work?

Arthur Rubin :

It should be a 1042-S, even for a Canadian. It's possible you could get in trouble for that, but it doesn't seem likely. The Canadian should be fine.

Customer:

Thank you for cooperation

Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1233
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
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