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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10869
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a business partner who is a foreigner with a visiting

Customer Question

I have a business partner who is a foreigner with a visiting visa and hasn't applied for a tax id number yet. My business has been paying him a partners draw and my accountant has issued a partnership return for 2015. What are the ramifications for me if he doesn't get a tax id number before tax returns must be filed on October 15th?
Submitted: 6 months ago.
Category: Tax
Expert:  Lane replied 6 months ago.

Hi,

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My name's Lane. I can help here.

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A partnership (foreign or domestic) that has income effectively connected with a U.S. trade or business (or income treated as effectively connected) must pay a withholding tax on the effectively connected taxable income that is allocable to its foreign partners.

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The withholding tax rate for effectively connected income allocable to non-corporate foreign partners is 39.6%.

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If the partner hasn't been in the US long enough to pass the substantial presence test, then he can still file a 1040NR and get a refund by showing his actual income and being taxed at gradated rates (so very likely NOT actually at a 39.6 rate).

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If he is resident, then he will file a 1040, there IS no rquired withholding - although her should be paying estimated taxed so as not to have an underpayment penalty - and get BOTH the standard deduction and the personal exemption (form 1040NR filers get no standard deduction) then being taxed at the same graduated rates to get an even larger redund.

Expert:  Lane replied 6 months ago.

SO, from a tax perspective. the possible withholding (should be done by the partnership) is the issue.

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Although I am not an immigration attorney, theree may also be unauthorized worker issues here as well.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here

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Thank you!

Lane

I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.