Banks have been required to enforce their Final Customer Due Diligence Rule and will “look through” both individual and nominal legal entity account holders to clearly identify them.
Did you receive a KYC (Know your Customer) Form from your bank? Here’s what you have to know:
KYC Policies enable banks to know their clients and comply with The FinCen guidelines with respect to the U.S. Bank Secrecy Act/Anti Money Laundering (AML) regulations.
Under these regulations every financial institution has to obtain beneficial ownership and control information when an account is being opened. AML Compliance includes analyzing the account relationship, develop a customer risk profile and conduct ongoing monitoring to identify and report suspicious transactions.
If you are an individual you will be asked to submit copies of your ID or passport, form W9 or W8Ben, and documents proving your current address.
If you are a legal entity you will be asked to verify the legal status of the entity, the identity of the authorized signatories and the identity of the beneficial owner/s, and/or controllers of the account and the chain of ownership of the entity.
If you refuse or delay your answer, the Bank is entitled to refuse to open new accounts or discontinue its relationship with you.
Any questions or concerns? Please contact us, we at GC Consultants, Inc. are here to help you and clarify all your doubts.
The Foreign Investment in Real Property Tax Act, also known as FIRPTA, is a tax act that has been around since the 1980’s. This act is designed for the government to protect property interests in the United States, therefore regulating foreign investments in US property.
The act is designed to regulate foreign investments in US Real Property Interests (USRPI). We first need to know what US Property is. The IRS explains USRPI as interests that a taxpayer has in real property located in the United States or in the US Virgin Islands as well as certain personal property that is associated with the use of the real property. The term interests includes having shares in a domestic corporation which hold any USRPIs unless the corporation was not a US real property holding company (USRPHC).
The second point to keep in mind is that the act regulates foreign investments on USRPIs defined above. This means that FIRPTA withholding applies to foreign taxpayers (sellers) who dispose of US Real Property Interests (USRPI). Taxpayers who purchase USRPI from foreign taxpayers are required to withhold, starting from February 17, 2016, 15% of the gross proceeds (amount realized) on the disposition. This means that the rate of withholding is applied to the cash being paid, the fair market value of any other property being transferred, and the amount of any liability assumed by the purchaser or which the property is subject to immediately before or after the transfer.
Depending on the type of ownership of a USRPI, different withholding regulations might apply and therefore not limited to the 15% withholding on gross proceeds. The following are some examples of ownership types and withholding requirements:
1) Jointly owned properties, by U.S. and foreign persons, will have the amount realized allocated depending on the capital contributions of each.
2) Foreign corporations will withhold 35% of the gain it recognized on its distribution to shareholders.
3) Domestic Corporations will withhold tax on the fair market value of the property distributed if the corporation is a USRPI and the property distributed is either in the redemption of stock or in a liquidation.
Even though there are various regulations concerning FIRPTA, when it comes to withholding and ownership structures, it is important to realize that withholding taxes on the amount realized is a heavy burden for any foreign taxpayer attempting to sell. This is the case since the taxpayer would have to wait to file a tax return to claim a refund for excess withholding. There are various possibilities to be able to avoid this withholding which includes, but are not limited to:
1) Acquiring a residence that is less than $300,000 where you or a family member live in the residence for 50% of the time in two years broken down into two 12 month segments.
2) If you are disposing your interests in a corporation and that corporation certifies it is not a USRPI where the corporation was not a USRPCH in the last 5 years or it is not considered a USRPI by law.
3) You receive a withholding certificate from the Internal Revenue Service.
Method number three is one of the most frequently used ways to reduce or avoid the FIRPTA withholding. The reasons where this withholding certificate might be issued is if the IRS determines that the amount withheld if greater than the tax liability the seller will incur, the seller is exempt from US tax of all of the gain realized or an agreement with the IRS where security for the tax liability is provided by either the transferee or the transferor. It is important to make sure that a complete application, Form 8288-B, is made before or on the date of the transfer, otherwise, the application would be rejected. Within 90 days of filing, the IRS will then issue the withholding certificate.
Once the seller has applied for the withholding certificate, the IRS will delay the collection and reporting of the tax, under Form 8288-A, by 20 days starting from the date on which it has issued the withholding certificate whether it is approved or denied. Please note that to avoid any penalties or interests, even though you have applied for the withholding certificate, the full amount of the withholding tax has to be held in an escrow account until the certificate is received. The advantage of this is that the seller will receive the money as soon as the certificate, instead of waiting to file a tax return. The buyer will also be certain that he will not incur any future tax liabilities or penalties.
Selling or buying real estate can be quite risky and confusing unless proper guidance is received by your real estate agent, attorney, and CPA. We are available to help you plan your real estate transactions so that you can comply with IRS regulations and reduce your tax risk. Please call us for more details.
One of the main goals for a taxpayer is to increase his revenue. Two of the main areas, for a business to achieve this, are to expand its customer base into various states and to provide customer service. This could mean that the taxpayer might perform various kinds of transactions to expand the business’ influence in a state.
Depending on the kind of transactions, and the situation that the business finds itself in, nexus might be created. Nexus means that a taxpayer has filing obligations with a state whether for purposes of paying sales tax, filing state income tax returns, filing tangible personal property tax returns & other similar filing requirements.
There are many types of situations where a business could find itself having nexus with a state and most of it is concerning whether the taxpayer has economic substance with that state. Economic substance means that a business is essentially using the resources and infrastructure, of a state, to expand their business, for example using the state’s roads, properties, etc.
Certain transactions, that could create economic substance, are holding inventory in a warehouse, hiring employees to work, hiring independent contractors to work in a state, sending an employee to repair items in a state and many others. We always urge taxpayers to consider nexus implications for any new type of transaction which they are not familiar with and to test, on an ongoing basis, whether they have a nexus within the state.
Our firm is here to help you in making these kinds of considerations and would gladly consult with you on possible taxable effects and filing requirements that you might incur from having a nexus within a state.