Form W7

An individual could obtain ITIN issued by the IRS by submitting a form W7 to the IRS. An Individual Taxpayer Identification Number (“ITIN”) is a must for those who are not eligible to receive a Social Security Number (“SSN”). ITIN is mainly used for tax purposes and identifying before the Internal Revenue Service (“IRS”).

Before explaining the form W7, we would like to draw your attention to the fact why ITINs are important. For instance, a non-U.S. citizen who has no work authorization but in return a has income from a U.S. source is still liable to file tax returns. While filing these tax returns, one must also identify oneself before the IRS. This is where ITIN becomes essential.

This number is provided by the IRS (Internal Revenue Services) and only used for tax purposes. So, in order to obtain ITIN, the Form W-7 is required to be used.

In the W-7 Form, you are expected to fill in the following information:

• The reason for applying an ITIN
• The name, mailing address and, if different, foreign address
• Date of birth date and location of birth
• Applicant’s country of origin
• Foreign tax ID number, if he or she has one
• The applicant’s U.S. visa number, if applicable.

Form 5472

If your U.S. company has non-U.S. persons and also involves with foreign related parties, you wouldn’t want to miss to file Form 5472. Although not an actual tax return, Form 5472 is an informational form to be submitted to the Internal Revenue Service (“IRS”) annually for the U.S. companies with foregoing conditions.

This form may be filed either separately or as part of the actual tax return depending on the situation. For instance, a U.S. Disregarded Entity and owned by foreigners need to file separately.

The requirements

• The “significant” foreign ownership threshold is at least twenty-five percent at any time during the tax year. This filing responsibility starts when a U.S. company is 25% foreign- or when a foreign corporation engaged in a trade or business within the US. A company with 25% foreign-owned and has at least one direct or indirect 25% foreign shareholder at any time during the tax year. Generally, a foreign person is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either.
• Penalties usually arise for the failure to file. It is essential to ensure to have adequate records and information to timely prepare Form 5472. Keep proof of the timely filing of the returns to avoid the assessment of the penalty. Otherwise, the company would be at risk to face stiff penalties. The penalty for not filing or failure to file in a timely manner can be from $10,000 to $25,000.  Internal Revenue Service assesses the penalty if a tax return containing Form 5472 late-filed.

However, it must be noted that it is the corporation, not the individual owner or shareholder that files the form. As a result, any penalties will incur to the corporation.

In short, if your US company has a foreign owner or foreign shareholders then form 5472 required to file.

Do you have more questions or do you want to file your taxes with us? Please feel free to contact us!