What Is Next For the Individual Taxpayer Identification Number?

by Jane Lamberson 16. July 2012 14:30
Just when we thought we understood the complex set of rules  the Internal Revenue Service (IRS) had issued for nonresident aliens to obtain a taxpayer identification number (ITIN),  the IRS has announced  yet more changes.  These changes could affect many of the [1] nonresident aliens selling real estate in Southwest Florida and across the country, as they may find it harder than ever to obtain an ITIN number to transact business in the United States. On June 22, 2012 the IRS issued IR 2012-62, changing how ITIN numbers are to be obtained through the end of 2012. These interim changes are designed to strengthen IRS procedures for issuing numbers and are part of a comprehensive review of the ITIN processing procedures.   The new rules require that either: a) original documents be sent to the IRS along with the W-7 application, or b) certified copies of the documents must be sent from the issuing agency.  A key change is that a certifying acceptance agent can no longer merely certify that the nonresidents’ original documents are a true copy. The certifying acceptance agent must now send the certified copies to the IRS with the W-7 application. With the new regulations a nonresident alien will need a certified copy of their passport (or other acceptable documents) from the issuing agency in order to: a) sell US real property; and, b) file for a withholding certificate to get a reduced withholding tax based on, for example, a maximum tax liability calculation.   This means they will need to get the certified copy BEFORE they come to the US to transact any business that requires an ITIN number if they want to file a W-7 application for an ITIN number. Without the certified copy from the issuing agency, the only way to complete the application is to file with the original documents. In summary, it appears the new regulations will require every nonresident alien to get a certified copy of the required documents needed for the ITIN application process. (Of course there is always the alternative of submitting original documents to the IRS.)  That way if the need for an ITIN number ever arises, the required documents will be available. Keep in mind that certified documents are only valid as long as they are not expired.  With the many uncertainties of the ITIN program, I anticipate we may see a whole new application process in the coming year. Until then nonresidents will have more of a headache obtaining an ITIN number than ever before. Jane E. Lamberson, CPA is with the Naples office of Urish Popeck & Company of Florida, LLC and practices extensively in the area of International Taxation.  She currently is a certifying agent for ITIN applications for the Internal Revenue Service. [1] A limited number of prospective applicants are exempt from the process - military spouses and dependents without social security numbers who need an ITIN, and nonresident aliens applying to claim treaty benefits.   
Categories: Advisory

Review of the Alternative Minimum Tax

by Alan Huerth 15. May 2012 13:15
  Most people are familiar with the Federal Income Tax (regular) system, but most are not that familiar with the Alternative Minimum Tax (AMT) system.  AMT does not apply to partnerships or S-corporations, but does apply to C-corporations, Estates, Individuals and Trusts.  AMT is a tax system separate from the regular tax system.  Under AMT, separate rates (26% or 28%) are applied to AMT income (regular income after certain “add backs” of various regular tax benefits) to determine the AMT tax liability.  The Taxpayer pays the larger of regular tax or AMT tax liability. The intent of AMT is to force taxpayers with high income and lots of certain types of deductions to pay tax to the Federal government.  An exemption amount is provided to prevent taxpayers with lower income from being included in the AMT system.   This exemption is phased-out (eliminated) for higher income earners.  Unfortunately, this exemption amount and phase-out are not indexed for inflation.  As a result, more middle class taxpayers become included in the AMT system each year.  This forces Congress to pass AMT legislation each year to “patch” this problem.  Congress has not always addressed this issue effectively. For individuals, the major “add backs” are: The personal exemption.  Taxpayers with many exemptions may end up paying AMT tax for this reason alone. The Standard Deduction. Real Estate taxes and State taxes deducted as itemized deductions. Miscellaneous Itemized deductions. Medical Expense deductions. Incentive Stock Options (ISOs).  The unrecognized gain on the exercise of the options is recognized for AMT. C-corporations whose average annual gross receipts for the prior three year period don’t exceed $7.5 million are exempt from AMT. Depreciation on tangible property is calculated differently for AMT than regular tax.  This adjustment affects everyone under AMT. There are other adjustments and preferences that can also apply.  Urish Popeck tax professionals can assist with the complexities of AMT. Please contact us if you need assistance.
Categories: Tax