When it comes to reporting or withholding on domestic and cross-border payments, there are many obligations borne from US and foreign law that companies must abide by.
With recent legislation in the US and abroad, companies can face up to four different reporting regimes each year, including the following:
The global exchange of payment and financial information is an important way for governments to track the tax responsibilities of citizens and residents. It helps bridge the tax gap when persons fail to report required payments on their own filings.
Neglecting these reporting regimes is a costly mistake that companies and individuals can easily avoid by applying compliance processes and procedures.
We apply a proactive, process-oriented approach to compliance, using the applicable information reporting and withholding rules to help companies align with cross-border withholding and information reporting requirements.
Our team of experienced professionals focuses on streamlining compliance procedures by developing or evaluating current processes to document payees, classifying the source and type of payments being made, and maintaining information required for reporting and withholding.
Our nationally recognized practitioners apply these methods for a wide range of requirements, including:
US companies making payments to US persons in the course of a trade or business are required to make determinations regarding whether the payee is exempt from Form 1099 reporting, or which Form 1099 the income paid is required to be reported on.
For certain types of payments, a payee is required to certify a name and TIN combination on a Form W-9. For any payments reported, if the withholding agent doesn’t report the correct name and TIN combination, a $270 penalty is assessed and backup withholding is required for all future payments if the appropriate steps aren’t followed.
Processes must be established to collect Forms W-9 from US persons, validate the forms, and ensure the proper name and TIN combination is acquired for reporting. Failure to properly comply results in steep fines and penalties and may require backup withholding be applied to future payments.
The IRS frequently conducts Form 1099 audits, which can be complex and expensive for companies that haven’t established adequate procedures.
IRC Chapters 3 and 4 apply to any person making a payment in the course of a trade or business—otherwise known as a withholding agent—to a foreign person. Those making payments of US source income will likely have reporting and withholding obligations resulting from that payment.
A withholding agent must evaluate the tax documentation submitted by the payee, along with the character and source of the payment to determine the reporting and withholding obligations that apply under Chapters 3 and 4.
The steps required under IRC Chapters 3 and 4 are complex and can be burdensome to companies of all sizes. Our professionals have extensive knowledge with regulatory compliance and can help you streamline the process.
The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) have had a dramatic impact on financial institutions (FI), as there are additional due diligence procedures upon account opening and reporting, depending on the type of account held at the FI.
Foreign FIs, such as banks and funds, are required to identify US account holders—whether they hold their interest as a direct account holder or indirectly through an investment company. They must then document and report those account holders to the US government under the FATCA regulations.
FIs in CRS-participating jurisdictions are also required to identify direct or indirect investors that reside in other participating jurisdictions and report those payees directly. Intergovernmental agreements allow information sharing among participating jurisdictions to notify each government the amount of foreign investment income their tax residents are earning.
Our professionals can help determine what your obligations are under FATCA and CRS. They can then design and implement processes and procedures that allow you to adequately taking the required steps for compliance.
The combination of recent additional information reporting and withholding (IRW) tax regulations—and pressure to generate revenue—means increased audit activity.
The IRS has indicated that local audit teams are receiving additional audit training in the IRW sector, which leads to a heightened likelihood of audit and resulting penalties.
Our professionals can help you determine if you’re asking necessary questions to prepare for an IRS examination. If you’ve already received your IRS Notice, we can help you work collaboratively with the IRS.
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