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Please clarify - when you wrote "I registered for an EIN and received it" - did you register an US entity or you received EIN for a foreign entity?.
I received an EIN as a foreign entity.
Thanks for clarification. And your foreign entity is a corporation or a partnership?
It's a corporation. Limitied liability in Australia.
(ie, proprietary limited)
Then - I am not clear why the IRS send you a form 1065...As a foreign corporation - you need to file form 1022F - http://www.irs.gov/pub/irs-pdf/f1120f.pdf
However - the issue is different - because you registered with the IRS - you are considered an US located entity - and the payer reported your income as taxable in the US. In additional - because you represented yourself as an US entity - there were no mandatory withholding.The IRS received information that your entity received income - thus your tax return was expenses - but because the IRS did not received your tax return - you were sent a letter.That is my assessment of your situation.
That's quite strange because I haven't earned any income via the US just yet.
Also, the letter I received seemed to be just a standard letter information me about the EIN.It was titled "WE ASSIGNED YOU AN EMPLOYER IDENTIFICATION NUMBER". It then mentioned that I need to file form 1065.
Yes - that is strange. It looks as the EIN was provided for the US LLC with several members.The form 1065 is the tax return for the partnership. Genberally - the LLC with several members is treated as a partnership.I suspect that when the EIN was assigned - not all information was correct - and suggest to contact the IRS and verify.
Ok, thanks. I'll contact them and try and sort it out. The EIN application was filled out over the phone by a representative, so perhaps something was lost in translation.
That is most likely. However - if your entity applied for EIN - that means -at the time the application was provided - you gave the purpose - most likely - you stated that you are doing business in the US as a purpose. That also might be a reason the IRS asking for the tax return.
Very bizarre. I specifically stated what I was doing to the rep. Hopefully this is something that can be sorted out over the phone.
The next step woudl be to determine if your income is considered from US sources.There are some complex rules to determine the source of income. You may take a look - page 12 IRS publication 519 - http://www.irs.gov/pub/irs-pdf/p519.pdf - Table 2-1. Summary of Source Rules for Income of Nonresident Aliens.If that is income from US sources - it will be taxable in the US and will be subject of withholding. The purpose of withholding - to cover your possible tax liability. Your tax liability is determined when you prepare your tax return - and if overpaid - you will be entitled for a refund.If that is NOT income from US sources - it is NOT subject of neither income taxes nor withholding.
You wrote that you are "selling a digital product in the US by an online retailer".I assume that is the product you produced. In this case see in the table "Sale of inventory—produced" - allocated. That means - if you sell the product to US customers but the product was produced in a foreign country - a part of the income should be allocated as from US sources.That doesn't not nessasery means you will owe income taxes - but means - you might be required to file the tax return.
Yeah, it's a computer game sold internationally, including to customers in the US. The income to me is a royalty payment.
Unfortunately the situation is not as simple as we might want....You might be aware that there is US-Australia tax treaty in effect - which effectively allow your business to avoid US tax liability as long as you do not have any permanent establishment in the US - but the exclusion based on the tax treaty provisions must be claimed on your tax return.
Is this because I'm a corporation, not an individual? That would mean all those folks selling games, books and music on US retailers (iTunes etc) would be filing tax returns...?
In determination if income is from US sources or not - it doesn't matter if you are an individual or a corporation.For filing requirements - if the entity is required to file the US tax return or not - rules are different.
So to summarise. First, I contact the IRS and work out why I need to file tax returns and the 1065 form.Then, assuming it's an error (at least as far as the 1065 is concerned), I should file a tax return as soon as possible.
The second issue is based on the reason the IRS will provide. The wild guess is that is because of information provided when EIN was requested.Based on your information - I think that you do have income from US sources - but may use tax treaty provisions to exclude that income from US tax liability.If your entity is a foreign corporation - it should file 1120F. In any case - I suggest to have a qualified tax preparer helping you to sort things out and avoid IRS levies on your income from retailers.
Great, thanks for your help. Ah, how to 'accept' this answer? Do I click one of the ratings below?
My goal is to provide EXCELLENT service. You 'accept' the answer by rating it.You are welcome back if you need any clarifications or additional information.