Letter from Frustrated Taxpayer

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Letter from Frustrated Taxpayer

• Dear IRS
• I would like to cancel my subscription.
• Please remove my name from your mailing list.

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FAMOUS QUOTATIONS

• The hardest thing in the world to understand is
  the income tax.
  
• The income tax has made more liars out of the
  American people than golf has.
  
• Income tax returns are the most imaginative
  fiction being written today.

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FAMOUS QUOTATIONS

• Albert Einstein
• Will Rogers
• Herman Wouk

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IMMIGRATION LAW CLASSIFICATIONS

• An immigrant is a foreign-born person who has
  been approved for lawful permanent residence in
  the U.S. They are issued a green card .
  
• A nonimmigrant is an alien who seeks temporary
  entry to the United States for a specific
  purpose.
  
• Undocumented Alien

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RESIDENT AND NONRESIDENT ALIENS UNDER U.S. TAX LAW

• A Resident Alien is either someone who has been
  admitted as a permanent resident to the U.S. and
  been issued a form I-551 or green card by the
  U.S. Immigration Authorities or
• Someone who meets the Substantial Presence
  Test of the U.S. tax laws.

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THOSE INDIVIDUALS WHO MEET THE DEFINITION OF
RESIDENT ALIEN

• Must pay U.S. income taxes on their worldwide
  income
  
• Are treated for tax withholding purposes the same
  as U.S. citizens
  
• Are not entitled to the benefit of any tax
  treaties with other countries, as a general rule

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SUBSTANTIAL PRESENCE TEST

• An individual is considered a resident alien
  under the substantial presence test if he or she
  has lived in the U.S. 183 days or more counting
  at least 31 days during the current year and
• During the first preceding year 1/3 days lived
  in the U.S.
  
• During the second preceding year 1/6 days lived
  in the U.S.

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EXAMPLE OF COMPUTATION

• Current Year 2005 101 days x 1 101 days
• First preceding year 2004 152 days x 1/3 51
  days
  
• Second preceding year 2003 198 days x 1/6 33
  days
  
• 101 51 33 185 days

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SUBSTANTIAL PRESENCE TEST

• If the days lived in the U.S., under this formula
  equal or exceed 183 days the individual is
  considered a resident alien under the U.S.
  tax laws.
• If a person lives in the U.S. 183 days during one
  calendar year, they can also be classified as a
  resident alien
  
• Withhold on Resident Aliens under the same rules
  as U.S. citizens.
  
• A Non Resident Alien has tax withheld under
  special rules contained in the IRC.

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EXEMPTION FROM SUBSTANTIAL PRESENCE TEST

• Certain individuals such as students who enter
  the U.S. on an F-1 visa, or other student visa
  are exempt from the substantial presence test for
  a period of time, usually five years, provided
  for by a tax treaty with their country of
  residence.
• A visiting professor, with a J-1 visa, is also
  exempt from the test for a period of time
  provided for by a tax treaty with their country
  of residence.
• Those persons exempt from the Substantial
  Presence Test are discussed in more detail on
  page 6 of IRS Publication 519 U.S. Tax Guide
  for Aliens

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NON RESIDENT ALIENS

• A non resident alien usually is subject to U.S.
  income tax only on U.S. source income which
  includes wages for services performed in the U.S.
  
• U.S. sourced wages are usually subject to income
  tax withholding at the same rates as U.S.
  citizens and resident aliens.
  
• Unless a non resident aliens compensation is
  excluded from the term wages by law, exempted
  by treaty, or is for services performed outside
  the U.S. it is taxable.

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FORM USED BY U.S. RESIDENTS CLAIMING TREATY
BENEFITS

• As of July 5, 2004 U.S. residents must use form
  8802 to request certification of U.S. residency
  in order to qualify for lower tax rates under a
  tax treaty
• IRS estimates processing this form and issuing
  certification will take less than 30 days
  
• IRS expects to process over 3 million of these
  forms in 2005

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WITHHOLDING OF INCOME TAXES ON NONRESIDENT ALIENS

• IRS Publication 515, Withholding of Tax on
  Nonresident Aliens and Foreign Entities.
  
• Unless allowed by a specific treaty provision a
  non resident alien cannot
  
• Claim a standard deduction or certain itemized
  deductions
  
• Claim allowances for dependents
• File a married joint tax return.

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WITHHOLDING OF INCOME TAX ON NON RESIDENT ALIENS

• A non resident alien is limited in what he or she
  can claim as to itemized deductions such as home
  mortgage interest.
  
• A non resident alien is taxed on any wage income
  earned in the U.S. unless specifically exempted
  by treaty.
  
• Therefore, the special withholding rules on page
  15 of IRS Publication 15 apply.

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EXCEPTIONS

• Wages paid to nonresident aliens for services
  performed within the US are exempt from FIT w/h
  if
  
• The nonresident is in the US for a period not
  exceeding 90 days during the year
  
• The total wages do not exceed 3,000 and the
  wages are paid by a nonresident individual,
  foreign partnership or corporation or a US
  citizen, domestic partnership or corporation
  where the services are performed for an office,
  of the US entity, in a foreign country or US
  possession.
• Services performed by a nonresident alien in the
  US, on a temporary basis, as a regular member of
  a crew of a foreign vessel, traveling between the
  US and a foreign country or US possession.

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ALLOCATION OF ALIENS INCOME TO U.S. SOURCES

• The IRS has just issued proposed regulations on
  determining the source of income where the labor
  that generates the income is performed by a
  nonresident alien partly inside and partly
  outside the United States
• The general rule is the allocation is done by
  comparing the total number of days worked in the
  U.S. to the total number of days worked by the
  employee

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NON RESIDENT ALIEN STUDENTS WHO RECEIVE U.S.
SOURCED SCHOLARSHIPS

• A non resident alien who is a student at a U.S.
  educational institution and IS A CANDIDIATE FOR A
  DEGREE is required to have U.S. income tax
  withheld at a rate of 14 on payments received
  for room and board, from U.S. sourced
  scholarships.
• In order to qualify for a lower rate or exemption
  from w/h under a treaty the student must furnish
  a completed form 8233 to the payer of the
  scholarship.

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EXEMPTION FROM WITHHOLDING UNDER A TAX TREATY

• Compensation paid for services performed within
  the U.S. by a nonresident alien individual is not
  included in the term wages and is not subject
  to withholding under Section 3402 IRC if the
  compensation is exempt from U.S. income tax under
  a tax treaty.
• The nonresident alien must supply the employer
  with a signed form 8233 to qualify for this
  exemption.
  
• IRS Publication 901 summarizes provisions of all
  U.S. tax treaties.

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PAYMENTS TO A NON RESIDENT ALIEN FOR SERVICES AS
A CONTRACTOR

• The general rule is payments to a nonresident
  alien for services performed in the U.S. as a
  contractor are subject to withholding under
  Section 1441 IRC at a rate of 30 on the gross
  amount paid unless the payee provides
  documentation to the payer, such as a properly
  completed form 8233 supporting a reduced amount
  of withholding.

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PAYMENTS TO A RESIDENT ALIEN OR U.S. CITIZEN AS A
CONTRACTOR

• If you make payments to a U.S. citizen or
  resident alien for services provided as a
  contractor you must withhold at a rate of 29 or
  28 after December 31, 2005 unless you receive a
  completed form W-9 from the payee. Refer to IRS
  Publications 1679 and 1281 for more information
  which can be obtained at www.irs.gov.

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INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITIN)

• IRS Publication 1915 which is available at
  www.irs.gov provides more information on this
  topic.
  
• An ITIN is a nine-digit number, beginning with
  the number 9 and has a 7 or 8 for the fourth
  digit, formatted like an SSN
  
• 9XX-7X-XXXX
• An ITIN is only available to individuals who need
  an identification number for tax purposes but are
  not eligible to obtain an SSN.

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INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN)

• An individual taxpayer identification number does
  not authorize anyone to work in the U.S. or allow
  anyone to claim the Earned Income Tax Credit.
  
• It is not valid identification outside the tax
  system.
  
• It must be entered in the space for SSN when
  completing and filing tax documents and tax
  returns.

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INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN)

• An individual applying for an ITIN to file a tax
  return must complete form W-7 or W-7 SP and
  attach the original completed tax return to the
  application form.
• Exceptions to the requirement to attach an
  original completed tax return to the application
  form are found on page 8 of IRS Publication 1915.

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HELPFUL IRS PUBLICATIONS

• Publication 515 Withholding of Tax on Non
  Resident Aliens and Foreign Entities
  
• Publication 519 U.S. Tax Guide for Aliens
• Publication 901 U.S. Tax Treaties
• These Publications can be downloaded or printed
  or viewed at www.irs.gov. Click on the forms and
  publications link.

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ON LINE HELP AT WWW.IRS.GOV

• You can review the actual text of most of the tax
  treaties the United States and other countries
  have entered into at
  
• www.irs.gov/businesses/international
• When the screen appears click on income tax
  treaties in the gray area in the left part of the
  screen.

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ON LINE HELP AT WWW.IRS.GOV

• Click on the Charities and Non Profits link which
  has valuable information for Charities and non
  profit organizations.
  
• Click on the Tax Professionals link if you are a
  tax return preparer.
  
• Click on the Retirement Plans link for
  information on tax law regarding retirement plans.

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ON LINE HELP AT WWW.IRS.GOV

• After clicking on the Businesses link at
  www.irs.gov, then click on the small
  business/self employed link for helpful
  information for Small Business owners.
• Or you can type www.irs.gov/smallbiz and click on
  Go.

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CONTACT INFORMATION

• Avery Henline
• Telephone [phone]
• Fax [phone]
• E Mail avery.henline_at_irs.gov
• Because I am out of my office frequently please
  try the e mail address first